Stock Name: AFFIN
Company Name: AFFIN HOLDINGS BHD
Research House: INTER PACIFIC

Affin Holdings Bhd
(Aug 23, RM3.06)
Recommend outperform at RM3.05 with target price of RM3.50: We recommend 'outperform' with fair value at RM3.50 based on the Gordon Growth Model with weighted average cost of capital of 8.51% and FY2011 P/BV of 0.9 times and ROE of 10.0%. With its cheap valuation, stable earnings, better asset quality and brighter prospects, we think it is a good buying opportunity.

1HFY2010 profit before tax (PBT) and net profit fell in line with expectations, accounting for 51.8% and 50.8% of our FY2010 forecast respectively. Strong growth in PBT by 36.4% year-on-year (y-o-y) in 1HFY2010 was due to the robust PBT growth in 2QFY2010 by 25.5% y-o-y to RM154.3 million. Drivers to such stellar growth are: (i) higher operating income (+3.5% y-o-y); (ii) sharp fall in impairment allowances by 56.4% y-o-y; (iii) net interest income (+5.5%) and (iv) income from Islamic banking (+11.9% y-o-y).

In tandem with improving profitability, cost/income ratio eased to 46.8% in 1HFY2010, from 49.1% in 1HFY2009. Annualised ROE and ROA was at 10.1% and 1.2%, which is above their FY2010 targets of 8.4% and 1.0% respectively. Gross loans outstanding in 1HFY2010 rose by 9.6% or an annualised growth rate of 19.2%. Customer deposits expanded by 8.4% in 1HFY2010 or an annualised growth rate of 16.8%. Quarter-on-quarter, gross loans outstanding grew by 4.8% and deposits up 6.1%. Underpinned by the strong loans growth against deposit, the loan/deposit ratio rose to 80.3% end 1HFY2010 against 75.8% at end-June 2009.

Gross impaired loans ratio fell to 3.6% end-June FY2010, from 4.6% in 1QFY2010, on par with industry standards. But the impaired loans coverage ratio under the adoption of FRS 139 fell to 63% end-June FY2010 from 69.7 % in 1QFY2010 owing to some allowance written-off in 2Q10. Adding on, the core capital ratio and risk-weighted capital ratio stayed healthy at 11.49% and 13.23 % as at end-June FY2010. Net NPL ratios based on Bank Negara Malaysia/GP3 guidelines stood at 2% as at end June-FY2010, which is close to the FY2010 target of 2%. ' Inter-Pacific Research, Aug 23


This article appeared in The Edge Financial Daily, August 24 2010.