Results

3QFY13 net profit of RM173m (8.6% qoq; 7% yoy) took 9MFY13 to RM483.1m (3.1% yoy) or accounted for 79.5% of HLIB and 79.6% of consensus forecasts.

Deviations

Although it is slightly ahead (6% above if annualized), we considered the results to be in line given that it continued to record provision write-back (as recovery is more than provision) which is unlikely to continue indefinitely.

Although management guided (during its 2QFY13 results briefing) that the provision write-back will continue in FY13, our overheads assumptions were more conservative.

Dividends

Interim tax-exempt of 8.9 sen and single-tier of 6.1 sen. Total of 15 sen net (yield of 3.6%) is higher than 12.25 sen net (2.9%) in previous corresponding period and also higher than our projection of 12 sen. Note that in FY12, Affin only declared dividend in 3Q and none in 4Q. Ex and payment dates are 12 and 30 Dec, respectively.

Highlights

3QFY13 results were boosted by provision write-back (mainly due to large recovery) and low effective tax rate, complemented by sustained net interest income growth (albeit at low single-digit) and sustained non-interest income (qoq but lower yoy). Meanwhile, overheads were kept largely flattish.

Loans growth continued to slow to 8.1% yoy (vs. 8.7% in 2Q and lowest since 2Q08). While it was conscious efforts to ensure decent growth without compromising asset quality, the trend is contrary to management guidance of slight accelerate to match industry average by year end. This is slightly below HLIB’s 9% assumption for industry and Affin.

Asset quality continued to improve while capital ratios remained robust.

Risks

Unexpected jump in impaired loans, lower than expected loan growth and intense competition from larger peers.

Forecasts

Unchanged.

Rating

SELL

Positives

• Improving asset quality, profitability and Tier-1 capital purely equity;
• Potential M&A excitement given that it is one of the two remaining smallest banks with assets size of circa RM50bn (less than half of the next largest bank, AMMB).

Negatives:

• Investors’ perception and its delinquency track record.
• One of the lowest NIM among peers, lowest ROE in industry, low deposit franchise (CASA only 21% of total) and one of the highest percentage of fixed rate loans.

Valuation

Target price maintained at RM3.81 based on Gordon Growth with ROE at 9.7 and WACC at 10.8%.

Source: Hong Leong Investment Bank Research - 29 Nov 2013