Investment Highlights

• Recall, Affin Bank recorded a 44.7%YoY jump in profit after tax by 44.7%YoY to RM359.3mil for 9MFY18. Strong traction in Islamic banking income and NOII from an increase in net fee and commission income, although partially offset by lower NII, gave rise to the improved earnings.

• Gross loans grew 6.7% YTD (FY17: 7.0%YoY) against FY18 target of 6.0-7.0% underpinned by growth in consumer, corporate and SME financing. Presently, the mix of consumer, corporate and SME financing to total gross loans is 49.8%, 42.1% and 8.1% respectively. The group aims to rebalance the composition to 40.0% consumer, 40.0% corporate and 20.0% SME loans eventually. By loan purpose, its financing comprises largely of mortgage loans (20.3% residential and 13.4% non-residential property loans), HP (26.4%), working capital (24.0%) and construction loans (7.7%). For FY19, it aims to grow its loans by 6.0%. This will be largely driven by consumer loans accounting for 50.0% of the expansion with SME and corporate financing contributing 25.0% each to the financing growth.

• Customer deposits climbed RM5bil or 9.8%YTD, faster than its loans, thus improving the group’s liquidity to a lower LD ratio of 84.6%. The rise in deposits was driven largely by higher corporate deposits. Gross loan/deposit ratio was 84.6%. Meanwhile, group LCR stood at 137.06% while loan-to-fund and equity and loan-to-fund ratios were 74.4% and 84.3% respectively.

• 9MFY18 NIM (based on total assets) contracted by 9bps YTD to 1.84% (FY17: 1.93%). We understand that this was contributed by the pressure on its funding cost to meet the requirements for the NFSR. The group’s NSFR now stands north of 80.0%. The recently announced extension of the observation period for the ratio provides more room for it to raise its NSFR to 100.0% by mid-FY19.

• OPEX climbed 1.8%YoY for 9MFY18 due to higher personal, promotion and marketing expenses. This led to a higher CI ratio of 62.98%, and the group aims to lower it to 60.0% by endFY18. The group targets to further reduce its CI ratio in 2019 through its transformation project, the Affinity programme.

• Gross impaired loan (GIL) ratio was higher at 2.77% in 3QFY18 vs. 2.53% in 4QFY17 (industry: 1.50%). The increase was due to the impairment after the restructuring and rescheduling (R&R) of a few corporate loans. Excluding the R&R loans, GIL ratio was lower at 2.51%. Work is in progress to regularise the impaired oil & gas and property sectors’ loans, and a successful resolution of these should see an improvement in GIL ratio. Net credit cost was 15bps while loan loss cover, including regulatory reserves, was 97.6% for 9MFY18.

• CASA ratio is low at 14.8%, and over the next 3 to 5 years, we understand that the group aims to increase it closer to 30.0% (industry level). Presently, the group’s customer deposits comprised largely FDs (71.3% of the total customer deposits), and these are costly on its funding. Challenges in raising CASA were due to its lack of transactional capabilities for deposits compared to its peers.

Source: AmInvest Research - 14 Dec 2018