AFFIN (5185) : Affin Holdings - Not taking full advantage of rate hike
Target RM2.87 (Stock Rating: REDUCE)
Affin’s 9MFY14 net profit missed expectations, forming 67% of our full-year forecast and 70% of consensus. The deviation mainly resulted from higher-than-expected overheads. The interim DPS of 15 sen was above our projected 12 sen. Our ESP forecasts are lowered as we raise our projected FY14-16 overheads by 8-9%. For this reason, our DDM-based target price fell (COE of 12.7%; LT growth of 4%) despite a roll-over of valuation to end-2015. The stock remains a Reduce, premised on the murky earnings outlook arising from weak loan growth, suppressed margins and an upturn in credit costs, and dilution from the acquisition of HwangDBS Investment Bank. We prefer Maybank.
Lower margins despite rate hike
Although we expected the rate hike to be positive for Affin’s margins, its net interest income only rose 2.8% yoy in 3QFY14 against an annual loan growth of 8.8%. This was mainly due to a 7bp yoy contraction in 3QFY14 net interest margin. We think that it gave away some of the benefits from the rate hike to compete on deposits. As such, it managed to grow its total deposits by 10.2% yoy in Sep 14, faster than the loan expansion rate.
Loan growth close to the industry’s pace
Loan growth recovered from 6.6% yoy in Jun 14 to 8.8% yoy in Sep 14, close to the industry’s pace of 9%. The key driver was the reversal of a decline of 1.6% yoy in Jun 14 to 8.4% yoy growth in Sep 14 for working capital loans, but the momentum in residential mortgages and auto loans moderated.
Stable asset quality
The gross impaired loan ratio stayed at 1.9% in Mar-Sep 14, while the loan loss coverage rose marginally from 75.3% in Jun 14 to 76.6% in Sep 14.
Cautious earnings outlook
We advise investors to reduce their exposure to Affin as we remain cautious on its earnings prospects, in the light of an upturn in credit costs and suppressed margins. The drop in 9MFY14 net profit further supports our cautious stance on the group’s earnings outlook.
Source: CIMB Daybreak - 25 November 2014
Target RM2.87 (Stock Rating: REDUCE)
Affin’s 9MFY14 net profit missed expectations, forming 67% of our full-year forecast and 70% of consensus. The deviation mainly resulted from higher-than-expected overheads. The interim DPS of 15 sen was above our projected 12 sen. Our ESP forecasts are lowered as we raise our projected FY14-16 overheads by 8-9%. For this reason, our DDM-based target price fell (COE of 12.7%; LT growth of 4%) despite a roll-over of valuation to end-2015. The stock remains a Reduce, premised on the murky earnings outlook arising from weak loan growth, suppressed margins and an upturn in credit costs, and dilution from the acquisition of HwangDBS Investment Bank. We prefer Maybank.
Lower margins despite rate hike
Although we expected the rate hike to be positive for Affin’s margins, its net interest income only rose 2.8% yoy in 3QFY14 against an annual loan growth of 8.8%. This was mainly due to a 7bp yoy contraction in 3QFY14 net interest margin. We think that it gave away some of the benefits from the rate hike to compete on deposits. As such, it managed to grow its total deposits by 10.2% yoy in Sep 14, faster than the loan expansion rate.
Loan growth close to the industry’s pace
Loan growth recovered from 6.6% yoy in Jun 14 to 8.8% yoy in Sep 14, close to the industry’s pace of 9%. The key driver was the reversal of a decline of 1.6% yoy in Jun 14 to 8.4% yoy growth in Sep 14 for working capital loans, but the momentum in residential mortgages and auto loans moderated.
Stable asset quality
The gross impaired loan ratio stayed at 1.9% in Mar-Sep 14, while the loan loss coverage rose marginally from 75.3% in Jun 14 to 76.6% in Sep 14.
Cautious earnings outlook
We advise investors to reduce their exposure to Affin as we remain cautious on its earnings prospects, in the light of an upturn in credit costs and suppressed margins. The drop in 9MFY14 net profit further supports our cautious stance on the group’s earnings outlook.
Source: CIMB Daybreak - 25 November 2014
