AFFIN’s 12M17 showed stellar results but this is due to new consolidated figures of the new entity. We retained our TP of RM2.45 and OUTPERFORM call pending an analyst briefing today.

Results highlight. YoY, FY17 CNP contracted by 10% to RM418m underpinned by: (i) high opex of 34.6% and (ii) higher loan impairment of by 202% to RM72m.

Nonetheless, top-line growth was stellar at +18% YoY driven by fee- based income of +69% with growth of Islamic banking income registered at 22%. Fund-based income was strong as gross loans grew 7.0% (vs. industry/guidance of 4%/6%) with NIM stable at ~1.55%.CIR jumped by 8ppts to 60% as opex surged due to their ongoing AFFINITY program).

Asset quality deteriorated as GIL rose 90bps to 2.5% with credit costs surging by another 15bps to 0.16%. Sharp retracement of loan loss coverage to by 28ppts to 28% (excluding Regulatory Reserves). LDR of 90% is comparable with the industry of 90%.

Both CET1 and Capital of 12.2% and 17.2% are well above the regulatory requirements.

QoQ, CNP surged ahead by 131% on the back of lower impairment allowances (-99%) and lower effective tax rate of 21.2% (vs. 26.1% in 3Q17).Topline contracted by 2% due to contraction in fund and fee- based income 6.5% and 4.7% respectively. Loans improved by 2% as the fall in NIM (-26bps to 1.7%) dragged fund-based income. Asset quality was mixed as GIL rose 30bps to 2.5% while credit costs were marginal.

Forecast. We refrained for introducing our FY18E/FY19 forecast until further guidance from management at today’s analyst briefing.

TP and call retained. Our TP maintained at RM2.75 based on a blended FY18E PB/PE ratio of 0.52x/10.8x.

Source: Kenanga Research - 01 Mar 2018