Affin’s 9M13  results  beat  our  and  consensus  estimates,  as  a  MYR35m loan  impairment  writeback  more  than  offset  its  lacklustre  operating income  growth.  Dividends  were  also  ahead  of  expectations,  due  to stronger-than-expected  earnings  and  a  higher-than-expected  payout.  We raised our FY13F net profit forecast by 4%, but our MYR4.40 FV (10x CY14 EPS) and NEUTRAL call are unchanged.

- 3Q13 results beat estimates. Affin’s MYR173m 3Q13 net profit (+7% y-o-y;  +9%  q-o-q)  was  above  our  and  consensus  expectations,  with 9M13’s  MYR483m  bottomline  (+3%  y-o-y)  comprising  81%  of  our  and 79%  of  consensus  FY13  net  profit  projections  respectively.  While annualised pre-impairment operating profit was 8% below estimates, this was  more  than  compensated  for  by  a  net  writeback  in  loan  impairment allowance of MYR35m in 9M13 vs our FY13F: MYR76m charge.

- 3Q13  highlights.  Positives  were:  i)  stable  net  interest  margin  (NIM), both q-o-q and y-o-y, ii) tightly controlled overheads, iii) the quarter’s net loan  impairment  writeback,  and  iv)  improved  asset  quality.  However, loan growth was still soft (8% y-o-y vs industry’s 9.5%).

- Loan  and  deposit  growth.  Loan  growth  continued  to  decelerate  (see Figure  10),  as  growth  in  residential  and  non-residential  mortgages slowed. Annualised loan growth of 6% was below the 9-10% target and our  10%  assumption.  Customer  deposits  broadly  kept  pace,  on  an annualised  basis,  but  current  account  and  saving  account  (CASA) deposits were still down 2% YTD.

- Asset  quality.  The  gap  between  Affin’s  and  system  asset  quality narrowed further. Affin’s gross impaired loan (GIL) ratio of 2.03% is now slightly  above  system  GIL  ratio  of  1.99%.  Loan  loss  coverage  (LLC), however, was still lagging at 75.4% vs system LLC’s 97.6%.

- Dividend. Affin surprised with a higher-than-expected net interim DPS of 15  sen  (3Q12:  12.3  sen,  net)  vs.  our  net  DPS  forecast  of  12  sen.  This translates  to  a  net  payout  ratio  of  about  36%  vs.  our  30%  assumption. We do not expect a final dividend.

- Forecasts  and  investment  case.  We  raised  our  FY13F  net  profit forecast  by  4%  after  lowering  credit  cost  assumption  to  11bps  from 21bps. However, we keep our FY14F forecast unchanged, as we do not think the loan impairment writebacks are likely to be sustained. Thus, our MYR4.40 FV (10x CY14 EPS) and NEUTRAL call are retained.

Company Profile

The  principal  activities  of  Affin  are  commercial  banking  and  hire  purchase,  Islamic  banking,  investment  banking  and  stock-broking, money-broking,  fund  and  unit  trusts  management.  The  group  is  also  involved  in  life  and  general  insurance,  via  its  jointly  controlled entity/associate.

Source: RHB