Results

• Results in line. Affin’s 4Q17 net profit advanced at stronger pace of RM176m (+36% yoy). Higher loan-loss-provision dragged FY17 net profit to RM424m (-8.6% yoy). The results were in line with expectations, accounting for 97.5%, however marginally missed consensus forecast at 94.3%.

Deviations

• In line

Dividend

• No dividend was declared, FY17 dividend stood at 2.34sen, translating to 1% dividend yield.

Highlights

• 4Q17. Net profit surged strongly to RM176m (+36% yoy) mainly due to higher operating income and lower LLP. Operating income was premised on both NII and NOII, which increased by +7.3% yoy and +363% yoy. We noticed that Affin has started consolidating Affin Hwang’s related expenses under Affin Bank, which helped boost its NOII under the new entity.

• FY17. The surge in LLP and opex to RM71.6m and RM934m has weighed on Affin’s full year net profit, eased to RM424m (-9.4% yoy). However this was partly offset by stronger growth in Islamic banking income to RM334m (+22.8% yoy)

• Loan. Despite delivering loan under guidance at +4.3% yoy, it was still above industry average of +4.1%. We believe that Affin is making progress in the corporate loan segment. In addition, fine showing continued in the residential mortgage whilst the growth in working capital loan was halted.

• Deposits… Deposit failed to track healthy loan growth, declined -1.1% yoy on the back of declining NIDs and other deposits that eased by -52% yoy and -32% yoy. The similar trend was suffered in the CASA, slid -0.7% yoy and CASA ratio stood at 18.8% (+180bps qoq)

• Asset quality… GIL ratio dipped to 2.53% from 2.16% in 3Q17 as weakness was seen in the non-residential and hire purchase segments with absolute NPL seeing at uptick to RM272m (+260% yoy) and RM235m (+174% yoy).

Risks

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

Forecasts

• No change to our forecast pending to analyst briefing later today.

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 our TP to RM2.70. Our TP is derived from GGM model based on i) COE of 9.5x ii) 8.0% WACC. Maintain HOLD rating.

Source: Hong Leong Investment Bank Research - 1 Mar 2018