Results

• Slightly below estimates… AFG reported 4Q17 net profit of RM117.4m (-9.6% YoY,-9.5% QoQ), bringing FY17 net profit to RM512m (-2%). FY17 PAT marginally missed both HLIB and consensus estimates respectively, accounting for 94.1% and 94.7% of full year estimates.

Deviations

• Loan-loss provision (LLP) spiked by 97% to RM95m.

Dividend

• None.

Highlights

• Against FY17 KPIs... Met all KPIs guidance namely NIM, CTI, credit cost, ROE and dividend. It only missed loan growth KPI at only +1.6% YoY.

• YoY… 4Q17 net profit slipped to RM117.4m (-9.6% YoY) dragged by the rising LLP to RM27.6m. LLP continued to rise given higher GP for third consecutive month. Meanwhile, NOII fell by -9% YoY caused by decline in both MTM and forex income by -52% and -151% respectively.

• QoQ… Net profit fell by -9.5% QoQ on the back of weak operating income, resulting from declining NII and NOII by - 1.4% QoQ and -8.7% QoQ

• YTD… Net profit fell to RM512m (-2%) chiefly from a surge in LLP amounting to RM95m (+97%).

• Loans… Loan growth moderated further to only +1.5% YoY. Higher RAR loans expanded by +13.6% YoY, driven by SME segment (+9.4% YoY). Nevertheless, consumer unsecured (high RAR) slowed to only RM159m (-25% YoY). Lower RAR loans continued to slide by -1.8% YoY, dragged by mortgage and hire purchase.

• NIM… NIM widened by +11bps YoY driven by higher CASA composition of 34.5% and reduction in COF due to more efficient funding mix and repricing of FDs. Gross interest margin increased by 4bps due to higher RAR loan growth.

• New value proposition… Shared the progress on its latest products which will be launched this year. Management viewed that AFG’d earnings accretion will only be felt in FY19 due to heavy expenses to launch latest products.

Risks

• Somber reception on new products launched and additional investment to fine-tune business.

Forecasts

• Maintained. We introduce FY20 earnings forecast (+12.1%).

Rating

HOLD ( ↔ )

• Despite receiving lukewarm response on its new value proposition, AFG will continue to incur heavy expenses to introduce its products and key deliveries. Reception is uncertain as competitors can easily replicate similar initiatives.

Valuation

• Given moderate outlook in FY18 and FY19 (lower ROE assumption), we lower our TP to RM4.15 (from RM4.30). TP is based on GGM i) ROE of 9% ii) WACC 8.2%. Maintain HOLD rating.

Source: Hong Leong Investment Bank Research - 1 Jun 2017