RESULTS

• In-line. Affin Bank Bhd (Affin) reported a 1Q18 net profit of RM146m (-16% qoq). Earnings is not comparable on a yoy basis as 1Q18’s earnings reflect that of the new consolidated entity - Affin Bank Bhd - while the reported 1Q17 earnings is that of Affin Bank before the consolidation of Affin Hwang asset management and investment banking business. 1Q18 earnings was largely in line with our estimates as lower-than-expected net interest income was offset by a net write-back in provisions vs our 22bp positive net credit cost assumption. Despite the OPR hike, net interest income declined 5.9% qoq on the back of higher funding cost. Impact of MFRS9 on its CET1 was manageable at 20bp.
• Cost-to-income ratio remains elevated. Elevated opex mainly arising from higher staff cost and broad-based qoq weakness in revenues led to a sharply higher qoq CIR of 65.4% in 1Q18 vs 58.5% in 4Q17. The higher staff cost was a result of investment to buildup the SME business division.

EARNINGS REVISION/RISK

No change.

VALUATION/RECOMMENDATION

Maintain HOLD with an unchanged target price of RM2.40 (0.52x 2018F P/B, ROE: 5.9%). Given the lacklustre industry business loans growth and the build-up in staff cost for its business banking division, we believe the improvement in CIR traction will take time to materialise.

Source: UOB Kay Hian Research - 1 Jun 2018