News

• Following the announcement by Affin Holdings Bhd (AHB) five months ago on 16 February 2017, AHB made further announcement that it has received approvals from multiple regulatory, namely Bank Negara Malaysia (BNM), Ministry of Finance (MOF) and Securities Commission (SC) for its reorganization exercise.

Comments

• We are positive with the latest announcement which will eventually lead to AHB collapsing its financial holding structure and transfer the listing status to its main operating entity, Affin Bank (ABB).
• The approval by relevant authorities is earlier than expectations as it was guided to be around Oct-Nov 2017. Given the sooner-than-expected approvals, we are not surprised if ABB will be able to list on Bursa faster than the initial guidance of 10 months from first announcement in mid-February.
• To recap, after the completion of the reorganisation, ABB will own 100% equity interest in both Affin Hwang Investment Bank Bhd (AHIB) and Affin Moneybrokers (AMB), 51% stake in AXA AFFIN Life Insurance Berhad (AALI) and 37.07% stake in AXA AFFIN General Insurance Berhad (AAGI).
• No major impact to financials as the exercise will ensure removal of corporate structure layer, thus the cost savings from this exercise would be small. No major impact on the valuation as ABB will have similar share with AHB. Nevertheless, we note that the greater benefits are; i. Direct access to capital. ii. Enlarged capital base. iii. Improve the bank?s profiling.

Risks

• Unexpected jump in impaired loans and declining loan growth. Intense competition from bigger players.

Forecasts

• Maintained

Rating

HOLD (↔)

• We opine that Affin is making progress towards its Affinity target with deliveries in the ROE, loans growth and deposits target. However, Affin?s weak asset quality will remain a drag, especially with the lowest loan-loss coverage in the industry.

Valuation

• Maintain HOLD rating with unchanged TP of RM2.80. Our TP is derived from GGM model emanated from ROE of 6.4x and 7.9% WACC.

Source: Hong Leong Investment Bank Research - 17 Jul 2017