Stock Name: AFFIN
Company Name: AFFIN HOLDINGS BHD
Research House: RHB
Affin Holdings Bhd
(March 15, RM3.30)
Maintain outperform at RM3.30 with fair value RM4.30: Affin held an analyst briefing on Monday regarding its 4QFY10 ending December. Management shed some light on net interest margin (Nim) compression (-26 basis points [bps] quarter-on-quarter) and uptick in impaired loans noted in the 4QFY10 results.
Management attributed the Nim compression to competition (impacting both asset yields and funding cost) and higher cost of financing'' due to the repricing of liabilities. Apart from that, spreads earned from government agency deposits were also lower. As for the uptick in impaired loans, this was attributed to the adoption of more stringent classification criteria.
Management's 2011 loan growth target was unchanged at 12% to 15%, which would be above our expected loan growth of 8% to 9% for the banking system. Although this will be lower than the 17.1% loan growth in 2010, Affin will now be coming from a higher base. Key loan drivers would be: (i) consumer segment (mortgage and HP), where management targets growth of 15%; and (ii) business banking (around 12% growth), with targeted segments being education and oil and gas, among others.
The loan pipeline is healthy and would bode well for loan growth in 1H11. However, unfavourable external developments could have an adverse impact on 2H11 loan growth. Our FY11/FY12/FY13 gross loan growth projections currently stand at 11%/9%/9% respectively.
Management emphasised its loan growth would not come at the expense of asset quality. Given the smaller base, the group can afford to remain selective in terms of its choice of sectors and customers. Affin's gross impaired loan ratio as at end-December was 3.6% and, barring unfavourable developments, this ratio is expected to fall further. As for credit cost, this was guided to remain stable this year (FY10: 38 bps). Our FY11/13 earnings projections assume slightly more conservative credit cost of 43 to 44 bps per annum.
Broadly, management targets to match deposit growth with loan growth. Emphasis would be to grow current account, saving account (Casa) deposits in order to provide funding stability and help mitigate Nim pressure (Casa ratio was 19.5% as at end-FY10).
Management expects Nims will continue to be under pressure due to competition as well as recent hike in statutory reserve requirement (SRR) but this will be cushioned by efforts to grow Casa deposits. On the whole, management was hopeful Nims would hold steady this year. In our model, we factored in Nim contraction of seven bps this year, followed by another two to three bps contraction per year in FY12 and FY13.
Our earnings projections are unchanged, as is our indicative fair value of RM4.30, which is based on target CY11 price-earnings ratio of 12 times. We maintain our 'outperform' call. ' RHB Research, March 15
This article appeared in The Edge Financial Daily, March 16, 2011.
Company Name: AFFIN HOLDINGS BHD
Research House: RHB
Affin Holdings Bhd
(March 15, RM3.30)
Maintain outperform at RM3.30 with fair value RM4.30: Affin held an analyst briefing on Monday regarding its 4QFY10 ending December. Management shed some light on net interest margin (Nim) compression (-26 basis points [bps] quarter-on-quarter) and uptick in impaired loans noted in the 4QFY10 results.
Management attributed the Nim compression to competition (impacting both asset yields and funding cost) and higher cost of financing'' due to the repricing of liabilities. Apart from that, spreads earned from government agency deposits were also lower. As for the uptick in impaired loans, this was attributed to the adoption of more stringent classification criteria.
Management's 2011 loan growth target was unchanged at 12% to 15%, which would be above our expected loan growth of 8% to 9% for the banking system. Although this will be lower than the 17.1% loan growth in 2010, Affin will now be coming from a higher base. Key loan drivers would be: (i) consumer segment (mortgage and HP), where management targets growth of 15%; and (ii) business banking (around 12% growth), with targeted segments being education and oil and gas, among others.
The loan pipeline is healthy and would bode well for loan growth in 1H11. However, unfavourable external developments could have an adverse impact on 2H11 loan growth. Our FY11/FY12/FY13 gross loan growth projections currently stand at 11%/9%/9% respectively.
Management emphasised its loan growth would not come at the expense of asset quality. Given the smaller base, the group can afford to remain selective in terms of its choice of sectors and customers. Affin's gross impaired loan ratio as at end-December was 3.6% and, barring unfavourable developments, this ratio is expected to fall further. As for credit cost, this was guided to remain stable this year (FY10: 38 bps). Our FY11/13 earnings projections assume slightly more conservative credit cost of 43 to 44 bps per annum.
Broadly, management targets to match deposit growth with loan growth. Emphasis would be to grow current account, saving account (Casa) deposits in order to provide funding stability and help mitigate Nim pressure (Casa ratio was 19.5% as at end-FY10).
Management expects Nims will continue to be under pressure due to competition as well as recent hike in statutory reserve requirement (SRR) but this will be cushioned by efforts to grow Casa deposits. On the whole, management was hopeful Nims would hold steady this year. In our model, we factored in Nim contraction of seven bps this year, followed by another two to three bps contraction per year in FY12 and FY13.
Our earnings projections are unchanged, as is our indicative fair value of RM4.30, which is based on target CY11 price-earnings ratio of 12 times. We maintain our 'outperform' call. ' RHB Research, March 15
This article appeared in The Edge Financial Daily, March 16, 2011.
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