Affin 9M18 net profit to RM375.5m (+9.8% YoY) came in within our expectation, but beat consensus full year net profit forecast, representing 77.4% and 81.6% respectively. Loan advanced at a more faster pace of 9.1% YoY as compared to 5.5% YoY in 6M18. Deposits accelerated faster by 8% YoY, aided by higher growth of fixed deposits. GIL ratio improved to 2.77% supported by the declining NPL in the real estate segment. No change to our TP of RM2.55, maintained HOLD with GGM of i) COE of 9%, and (ii) WACC 7.6%.

Within our expectation. We are comparing Affin YoY results to its former holding company, Affin Holdings (AHB). Affin’s 3Q18 net profit of RM150.5m (+90.5% QoQ, +105.5% YoY), lifts 9M18 net profit to RM375.5m (+9.8% YoY). The results came within our expectation at 77.4% of full year forecast, but beat market expectations at 81.6%. The decent results were supported by a net writeback in 3Q18, which in turn slowed the loan loss provision in 9M18.

Dividend. Declared first interim dividend of 5 sen, translating into 26% payout.

QoQ. Despite marginally weaker operating income (-0.7% to RM490.5m), net profit of RM150.5m (+90.5%) was underpinned by net writeback of RM1m vs. allowance of loan loss of RM91.9m in 2Q18.

YoY. Net profit surged by 105% primarily boosted by net writeback of RM1m and slower opex (-12.3%, related to lower personnel cost post MSS exercise).

YTD. Despite subdued operating income growth (which declined by 1.1% to RM1.45bn), net profit rose 9.8% to RM375.5m, as subdued operating income growth and higher loan loss provision were more than mitigated by lower overhead expenses and better associate contribution (which doubled to RM36.1m).

Loan. Loan advanced at faster pace of 9.1% compared to 5.5% in 2Q18. Construction (+22% YoY) and mortgage (+24% YoY) segments were the key drivers to 9M18 loan growth. Meanwhile hire purchase loan rebounded to 2% vs. flat in 6M18.

Deposits. Deposits accelerated faster by 8% YoY (from 3% in 2Q18), aided by fixed deposits (which grew by 13% YoY as Affin is striving to meet NSFR ratio given its number still below 100% mark). CASA composition moderated to 14.8% vs. 17% in 9M18, and this partly contributed to the 8bps NIM compression QoQ to 1.84%.

Asset quality. GIL ratio improved to 2.77% supported by the declining NPL at the real estate segment. Excluding R&R accounts, Affin GIL would have improved to ~2.5%.

Forecast. No Change to Our Forecast.

Maintain HOLD, TP: RM2.55. Affin is making progress on its financials, evidenced by a sequential improvement in its financial performance. We believe further effort is necessary to improve further on its asset quality close to industry level. We maintain our HOLD rating on Affin, with unchanged TP of RM2.55, based on GGM of (i) COE of 9%, and (ii) WACC 7.6%.

Source: Hong Leong Investment Bank Research - 29 Nov 2018