Journey to Wealth
Affin Holding Berhad - OUTPERFORM - 28 May 2012
Period 1Q12
Actual vs. Expectations
1Q12 PAT of RM166m was above the consensus' forecast (31%) and that of ours (31%).
Dividends No dividend was declared.
Key Result Highlights
The 1Q12 net interest income declined marginally by 1.7% QoQ despite seeing a positive growth in gross loans by 2.2% QoQ. Meanwhile total deposits raised by 2.8% QoQ. The NIM declined 5bps to 1.87% in 1Q12 (4Q11: 1.82%).
1Q12 non-interest income of RM219.8m was marginally positive with both QoQ and YoY growth rates registered at +3.8% and +11.3%, respectively. As such, the total revenue was uninspiring at RM361.9m (+0.4% QoQ). The key surprise during the quarter was the write-backs of RM13.8m.
However, gross impaired loans rose to RM911m and the gross impaired ratio was higher at 2.87% (from 2.84% in 4Q11). Loan loss coverage was at 68.5% and as such, we believe such a writeback would not be sustainable.
Cost was contained at a cost-to-income ratio of 47% during the quarter. The achieved ROE of 11.8% was above our expectation.
Outlook We maintain our conservative 4%-5% earnings growth forecasts for FY12-13, driven by loan growth of 10%, a falling cost-to-income ratio at 46% (from 48% in FY11), a lower credit cost ratio assumption at 23bps and stable NIMs.
However, we see the higher write-back in the current quarter as not sustainable as impaired loans were rising during the quarter with a lower loan loss coverage. We still believe that our FY12E ROE of 9% is reasonable due to the bank's conservative growth strategy over the past few years (loan growth averaged 10% p.a. in FY08-12).
Change to Forecasts
We are maintaining our FY12E PAT of RM528.5m and FY13E of RM554.9m.
Rating MAINTAIN OUTPERFORM
We reiterate our OUTPERFORM recommendation. In our view, AFFIN presents a good but underappreciated investment proposition. We see room for further expansion in its valuation multiples in the coming years.
Valuation Our TP of RM4.30 is based on a targeted 1.0x its FY2013 BV.
Risks Tighter lending rules and a margin squeeze.
Source: Kenanga
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