Affin Holdings 9M earning above forecast, says CIMB Research

The group is targeting to maintain the same level of loans growth of 5% to 7% that is similar to what was achieved last year, group chief executive officer Kamarul Ariffin Mohd Jamil said after its AGM here yesterday.

KUALA LUMPUR:  Affin Holdings Bhd’s net profit for the nine months ending Sept 30, 2016 was above expectations at 81% of CIMB Equities Research’s full-year forecast and 87% of consensus due to the lower-than-expected loan loss provisioning (LLP).

It said on Thursday that notwithstanding the challenging operating environment, Affin’s 3Q16 net profit jumped by a commendable 36.3% on-year. 

This was mainly driven by (1) lower LLP, which plunged by 88.2% on-year in 3Q16, and (2) 26.7% on-year surge in non-interest income, arising from a jump of 25.7% on-year in fee income and 155.% on-year in investment income.

“We are also encouraged that its net interest margin expanded by three basis points (bp) on-quarter despite the negative impact from the rate cut, due to its active asset-liability management.

CIMB Research pointed out that Affin Bank’s loan growth continued to ease from 2.7% on-year in June 16 to 1.8% on-year in September 2016. 

This was mainly due to (1) the slowdown in momentum for auto loans from 4.3% on-year in June 2016 to a mere 0.8% on-year in September 2016, and (2) a 4.6% on-year drop in working capital loans in September 2016, albeit narrower than the 5.9% on-year decline in June 2016. 

But this was offset by the acceleration in the growth of residential mortgages from 7.8% on-year in June 2016 to 9.7% on-year in September 2016.

Gross impaired loan ratio rose from 1.99% in June 2016to 2.08% in September 2016 while the loan loss coverage fell from 65.2% to 59.7% over the same period. 

“The increase mainly came from the working capital loans, which were for corporate and mid-sized business accounts, in our view. The increase is within our expectations, reflected by our projected gross impaired loan ratio of 2.3% for end-FY16,” it said.

CIMB Research raised its FY16 EPS forecast by 2.9% as it cut its projected loan loss provisioning by 18.8%. However, its dividend discount model-based target price (TP) stays at RM2.96.

“The stronger-than-expected 3Q16 results amidst the challenging operating environment reinforces our Add call on the stock. The potential re-rating catalysts include the (1) attractive valuation with CY17 P/E of 7.8 times and P/BV of 0.5 times, and (2) the benefits from the Affinity transformation programme. 

“The downside risk to our call would be a spike in impaired loans and credit costs as well as wider-than-expected margin erosion,” it said.