2Q15 results met our but missed consensus estimates. Maintain NEUTRAL with a revised MYR2.35 TP (11% upside). 2Q15 net profit saw a significant improvement sequentially , thanks to lower loan impairment allowances. There was also some improvement in the underlying numbers, but we remain mindful of potential asset quality issues ahead given the challenging macro environment.
2Q15 net profit of MYR139m (+30% YoY, +363% QoQ) met our but missed consensus estimates, with 1H15 net profit of MYR169m (-32% YoY) accounting for 34% of our but 31% of consensus 2015 forecasts. Affin should post stronger earnings in 2H15 (vs 1H15) as we do not expect loan impairment allowances ahead to be as lumpy as that in 1Q15 (relates to provisioning for two corporate accounts).
Results highlights. 2Q15 headline indicators were generally better sequentially as: i) loan base expanded by 4% QoQ/+10% YoY (1Q15: -1% QoQ) led by SME and government lending, ii) the net interest margin (NIM) rose by an estimated 11bps QoQ (-2bps YoY) due to a higher average asset yield, but quarterly changes are likely to be volatile, iii) the cost-to-income ratio (CIR) eased to 59% from 61.4% in 1Q15 due to lower personnel cost, and iv) credit cost (annualised) was lower at 13bps (1Q15: 122bps). Non-interest income, however, was down 7% QoQ (-8% YoY) due to lower investment income.
Asset quality deteriorated, with absolute gross impaired loans up 8% QoQ/+18% YoY. The sequential rise was mainly due to lower writeoffs this quarter but the net impaired loan formation rate improved to 116bps from 229bps in 1Q15 (2Q14: 96bps). Thus, the gross impaired loan ratio ticked up to 2.04% at end-Jun 2015 from 1.96% at end-1Q15, while loan loss coverage declined to 64% (end-1Q15: 68%, end-2Q14: 75%).
Deposit growth. Customer deposits were up 2% QoQ (+5% YoY) while the loan-to-deposit ratio increased to 84% (1Q15: 82%; 2Q14: 80%).
Still NEUTRAL, but with lower forecasts. We lower our 2015-2017 net profit estimates by c.4% pa after factoring in a further 2-4bps NIM compression and slightly higher loan provisioning. Our GGM-derived TP is lowered to MYR2.35 from MYR2.70 with the key assumptions being: i) COE of 10.5% (from 10%) to reflect, among others, risks from deteriorating asset quality, ii) long term growth of 4.5%, and iii) a revised sustainable ROE assumption of 7.8% (from 8%).
Source: RHB Research - 18 Aug 2015
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