Affin 1Q18 results were slightly stronger. 1Q18 net profit of RM146m (YoY: +18.5%; QoQ: -17.1%) came in slightly ahead of expectations, making up 29.3% and 27.6% of our and consensus full-year forecasts. Loan and deposits picked up pace by 3% YoY and 5.8% in 1Q18, however NIM was weaker. We reiterate our HOLD rating on Affin with unchanged TP of RM2.70, derived from GGM model of (i) COE of 9.5x (ii) WACC 8.0%.

Results slightly stronger. For comparison, we would match Affin’s 1Q18 results to its former parent of Affin Holdings. 1Q18 net profit of RM146m (YoY: +18.5%; QoQ: - 17.1%) came in slightly ahead of expectations, making up 29.3% and 27.6% of our and consensus full-year forecasts. No dividend was declared during the quarter.

QoQ. Net profit declined by 17.1% to RM146m as net write back of RM15.7m (vs - RM0.3m in 4Q17 and -RM5m in 1Q17) was more than offset by a 1 bps compression in NIM (arising from higher deposit cost) and weaker NOII (stemming from its portfolio management fees which slid by 20.6%).

YoY. Net profit grew 18.5% YoY to RM146m, backed by 3% loan growth, associate contribution (RM12.3m), net write-back (RM15.7m, mainly from write-back of 2 big accounts which were already under R&R) and lower overhead expenses (which declined by -5.2%).

Loan. Gross loans posted higher growth of 3% YoY (vs. 1.9% in 1Q17 and 4% in 4Q17). The pickup in loans was emanated from purchase of residential and construction sectors, which increased by 22.2% and 5.4% respectively.

Deposits. Deposits outpaced loan growth, advanced by 5.8% YoY at the expense of expensive fixed deposits which have in turn resulted in NIM compression. CASA, on the hand declined -9.2% QoQ, resulting in CASA ratio weakening to 16.4% compared to 18.8% at end-Dec-17.

NIM. Affin did not benefit from the OPR hike in Jan-18 as the accelerated fixed deposit drive raised cost of funds, hence resulting in NIM deteriorating by 2bps QoQ to 1.98%.

Asset quality. GIL is holding up well at 2.5%, unchanged for 2 consecutive quarters as the only improvement was seen in the GIL of residential property, improved to 2.4% from 2.5% in 4Q17.

Forecast. We leave our forecast unchanged for now as we believe loan loss provision will start normalising in coming quarters.

Maintain HOLD, TP: RM2.70. Maintain GGM-derived TP of RM2.70 based on (i) COE of 9.5x, and (ii) WACC 8.0%.

Source: Hong Leong Investment Bank Research - 1 Jun 2018