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Thursday, December 1, 2016

Brokers Report: Affin Holdings - Results above due to slower provision



Retain HOLD with unchanged target price (TP) of RM2.12


Results

  • Above expectations. Reported 3Q16 net profit of RM141m (+38.1% YoY, +2.9% QoQ), bringing 9M16 net profit to RM394.3m (+45% YoY). This is marginally ahead of HLIB full year forecast (81.8%) but well above consensus forecast (86.8%).

Deviations

  • Slower provision.

Dividend

  • Declared 1st interim dividend of 3 sen vs. 2.99 sen in 9M15, translating into RM58.3m or 15% payout ratio.

Highlights

  • 3Q16… Net profit grew strongly to RM141.4m (+38.1% YoY, +2.9% QoQ) on the back strong contribution from NOII of RM170m (+14.2% YoY, +3.6% QoQ), driven mainly by sales of financial instruments. Provisions continued to slow to - RM3.5m due to higher CA writeback and slower IA which offset the slower recoveries.
  • 9M16… Net profit surged to RM394.3m (+45% YoY) chiefly due to reversal of provision amounting -RM4.1m (-97.6% YoY). Decline in provisions was attributed to lower IA of RM47.8m (-377% YoY) and IA writeback of -RM33.6m (+641% YoY).
  • Loans were marginally bettered by 1.8% YoY. However on YTD, loans declined by 1.7%, due to contraction in loans for working capital by 10.4% YTD while Affin was continuing its focus on mortgage segment. NII grew 2.4% YoY driven from higher NIM of 1.94% despite escalating fixed deposits. Note that in 1H16 management replaced RM1.6bn loans with better yield loans.
  • Deposits outpaced industry, grew by 6.3% YoY driven by fixed deposits by 5.8% YoY. However, CASA dropped by 8% YoY. The expansion in deposits helped to lower LDR to 86.5% from 91.9% in 1H16.
  • Asset quality worsened slightly with GIL rising to 2.08% vs. 1.98% in 1H16 (from working capital and hire purchase segments). Credit charge trended higher to 0.8bps in 3Q16 from 0.5bps 2Q16 due to higher writeback and lower IA while LLC fell to 59.7% due to higher gross impaired.

Risks

  • Unexpected jump in impaired loans and declining loan growth. Intense competition from bigger players.

Forecasts

  • We maintain our forecasts.

Rating

HOLD ()
  • Despite encouraging results, we believe the NOII performance will not be sustained due to Ringgit volatility. Hence, we expect Affin’s earnings to normalize in 4Q and meet our full year forecast. Additionally, we expect normalization in its loan growth due to rising effort in the SME and corporate segment.

Valuation

  • Maintain HOLD recommendation. With unchanged target price of RM2.12 based on ROE of 5.6% and WACC of 8.3%.


Source: Hong Leong Investment Bank Research - 01 December 2016

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