Journey to Wealth
AFFIN Holdings Berhad - A partial divestment by DRB-Hicom?
News The media reported that conglomerate DRB-Hicom ('DRB') has no intention to divest its entire 70% stake in Bank Muamalat Malaysia Bhd ('BMMB') as it still wants to be involved in the financial services industry.
The group, controlled by prominent businessman Tan Sri Syed Mokhtar Al-Bukhary, has twice attempted to pare its stake in BMMB to Bank Islam Malaysia and a Bahrain-based Islamic lender ' Al Baraka Bank ' last year, but were unsuccessful.
Comments Recall that AFFIN announced that it has received an approval by Bank Negara Malaysia ('BNM') to commence negotiations for the acquisition of an equity interest in BMMB earlier.
Also, based on our understanding, DRB is required to reduce its equity interest in BMMB to 40%. As such, the news is not a surprise to us.
While we are optimistic about this acquisition, we also see hurdle for the deal to go through.
This is because BNM may not allow AFFIN to have an ownership of two Islamic Banking licenses, namely, 100%-AFFIN Islamic Bank and a potential 70% equity stake in BMMB, without merging both entities. As such, approval of BNM could be a hurdle for the deal to go through.
Besides, we believe an acquisition of a 100% ownership of BMMB by AFFIN will be more meaningful in building up its Islamic Banking position over the medium to long-term and deriving synergies from the acquisition.
Outlook Having seen a +22% rally over the last three months, the current valuation at 0.8x FY13 P/BV with an estimated ROE of 9.1% still, nonetheless, offers a favourable risk-to-reward proposition in our view.
We believe there is room for its trading multiple to improve with the M&As news and AFFIN's potentially higher credit risks could have already been priced in by the existing discount in its valuations.
Forecast No changes in our forecasts.
Rating Maintain OUTPERFORM
All in, we believe AFFIN presents a good and underappreciated investment proposition. We see rooms for further expansion in its valuation multiples with its improving operating metrics in the coming years.
Valuation Our TP of RM4.30 is on based on a targeted 1.0x PBV to its estimated FY13 BV.
Risks Tighter lending rules and a margin squeeze.
Source: Kenanga
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