Affin’s FY13 results were slightly ahead of estimates, as a MYR66m loan impairment write-back more than offset its lacklustre operating income growth. We believe near-term focus will be on the acquisition of HwangDBS  Malaysia’s  (HDBS  MK,  NR)  investment  banking  unit,  integration costs and expected synergies as well as the  deal’s  funding structure. Maintain NEUTRAL with revised FV of MYR4.30 (10x CY14 EPS).

• 4Q13 results a slight beat. Affin’s 4Q13 net profit of MYR167m (+4% yo-y;  -4%  q-o-q)  was  slightly  ahead  of  expectations,  with  FY13’s MYR650m  bottomline  (+3%  y-o-y)  making  up  104%  of  our  and consensus full-year estimates. While pre-impairment operating profit was 10%  below  forecast,  this  was  more  than  compensated  for  by  another quarter of strong recoveries, leading to a MYR66m net write-back in loan impairment allowance in FY13 (we forecasted MYR41m net charge).
• 4Q13 highlights.  Net interest and non-interest income were soft, down 3% q-o-q (-2% y-o-y) and 2% q-o-q (-2% y-o-y) respectively. Net interest margin (NIM) was down an estimated 9bps q-o-q,  as Affin opted to build up liquidity with the loan-to-deposit ratio (LDR) declining 250bps q-o-q to 77.9%.  Meanwhile,  overheads  rose  11%  q-o-q  on  higher  professional fees relating to the Hwang-DBS deal, we believe. Thus, cost-to-income ratio (CIR) jumped to 52.6% in 4Q13 from  3Q13’s 46.1% (4Q12: 48.8%). The  saving  grace  was  the  higher  recoveries  that  came  in  during  the quarter,  leading  to  a  MYR31m  net  write-back  in  loan  impairment allowance (net writebacks of MYR5m/MYR20m in 3Q13/4Q12).
• Loan and deposit growth.  Loan growth  picked up pace (4Q13: +2.9% q-o-q vs 3Q13: +1.2% q-o-q) but full-year growth of 7.9% was still below the  9-10%  target  and  system’s  10.6%.  Customer  deposits  growth  was stronger  at  10.3%  y-o-y  while  current  account  and  saving  account (CASA) deposits were up 12.7% y-o-y. The CASA ratio improved slightly to 21.6% from 21.1% at end-2012.
• Asset quality.  Asset quality was broadly stable with the  gross  impaired loan ratio at 2% while loan loss coverage (LLC) was 74.4%.
• Forecasts  and  investment  case.  We  updated  our  model  for  the  fullyear results  and lowered our FY14 net profit forecast by 3.5%  to reflect the  weaker-than-expected  FY13  operating  income.  We  also  introduce our FY15F numbers.  FV is  tweaked down to MYR4.30 (10x CY14 EPS) from MYR4.40 but our NEUTRAL call remains unchanged.

Company Profile
Affin’s  principal activities 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