Affin said in a stock exchange filing that both parties were not able to finalise the transaction documents for the sale of the stake in time and in accordance with the central bank
KUALA LUMPUR: CIMB Research has downgraded Affin Holdings Bhd
to “hold” from “add” due to a slowdown in earnings growth in 1Q17, and an unexpected increase in gross impaired loan (GIL) ratio.
“The stock is not a ‘reduce’ because we deem its FY18F price-to-book value (P/BV) of 0.6 times attractive, as it is the lowest in the sector.
“The share price performance has also been strong with a 19.7% gain year-to-date, outperforming the KLCI’s 8% rise over the same period,” it said, adding that the upside/downside risks to its call were a drop/increase in loan loss provisioning and significant pick-up/slowdown in loan growth.
CIMB said although Affin’s 1Q17 net profit accounted for only 21% of the house and Bloomberg consensus’ full year estimates, it deem the result in-line on the expectations of stronger earnings in the coming quarters.
It added that the recovery in loan growth, stable margins and robust noninterest income bode well for its earnings growth in the remaining quarters of FY17. As per norm, no dividend was declared in the 1Q17.
CIMB has retained its FY17-19F EPS forecasts and DDM-based target price of RM2.96.
The research house said the positive take for 1Q17 was the 19.4% year-on-year (yoy) jump in operating revenue, probably the strongest among the local banks.
This was driven by the 39.6% yoy surge in noninterest income. However, 1Q17 net profit growth was only 4% yoy, dragged by loan loss provision of RM6.5mil in 1Q17 versus net writeback of RM1.6mil a year ago, 20.5% yoy jump in overheads, and an 86.7% yoy plunge in contributions from associates and joint venture.
Its loan growth rebounded from 0.6% yoy at end-Dec 16 to 1.9% yoy at end-Mar 17, albeit still below the industry’s pace of 6%, CIMB said.
The bank’s GIL ratio rose from 1.67% at end-Dec 16 to 1.99% at end-Mar 17.
“We see the wide increase in GIL ratio within a quarter as a negative surprise, although the ratio was close to our projected 2% for end-2017 GIL at end-Mar 17 was lifted by the 92.7% qoq surge in GIL for residential mortgages.
“Loan loss coverage declined from 55% at end-Dec 16 to 38.5% at end-Mar 17. Including regulatory reserves of RM293.5mil, total coverage stood at 71.2% at end-Mar 17, still below the sector average of circa 98%,” CIMB said.
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