AFFIN HOLDINGS BHD (AFFIN)

Transcription

1 AFFIN HOLDINGS BHD (AFFIN) All figures in millions of Ringgit Malaysia except per share values and ratios Analysis Date: 21/06/2013 Financial Year: /12/2012 Latest Quarter: 31/12/2012 Price: 4.15 Stock Category: Large Capital Growing Overview (Reuters): Affin Holdings Berhad is an investment holding company. The principal activities of the subsidiaries are Commercial Banking and hire purchase, Islamic Banking, Investment Banking and stock-broking, Money-broking, Fund and unit trusts management. It operates in four segments: Commercial Banking, Investment Banking, Insurance and Others. The Commercial Banking segment focuses on business of banking in all aspects which includes Islamic Banking operations. Investment banking segment focuses on business of a merchant bank, stock-broking, fund and unit trusts management. The insurance segment includes the business of underwriting all classes of general and life insurance businesses in Malaysia. On July 3, 2012, the Company s dormant and wholly owned subsidiary, AFFIN-ADB Sdn Bhd, was dissolved. Overview (Bloomberg): Board: FBMKLCI: Industry: Sub-Sector: Ownership: AFFIN Holdings Berhad, an investment holding company, engages in commercial banking, hire purchase, Islamic banking, investment banking, stock-broking, money-broking, and fund and unit trusts management activities primarily in Malaysia. Its consumer banking products and services include savings and fixed deposits, remittance services, current accounts, credit cards, unit trusts, and bancassurance products, as well as consumer loans, such as vehicle loans, housing loans, personal loans, and overdrafts to individuals; and enterprise banking products and services comprise long-term loans; project and equipment financing; and short-term credit, including overdrafts and trade financing to the large corporate, and small and medium enterprises, as well as the public sector. The company also offers investment banking products and services consisting of advisory services and structuring of private debt securities; corporate finance and advisory services for corporate listings; mergers and acquisitions; capital raising through issues of equity and debt instruments; corporate and debts restructuring exercises; structured lending solutions for corporate finance and capital market activities; and various funds and capital market investment products to corporate and institutional investors. In addition, its stock-broking services comprise institutional and retail stock-broking, investment management, and research services. Further, the company underwrites various classes of general and life insurance, as well as offers property management and nominee services. AFFIN Holdings Berhad was incorporated in 1975 and is based in Kuala Lumpur, Malaysia. Main Board NO FINANCIALS BANKS Corporate Owned (Local) Investment Strategy Portfolio Strategy: Lump Sum + Top Up Averaging Down Method: Dollar Cost/Value Averaging;Stop Loss Portfolio Execution: Buy and Monitor;Momentum Basis for Buying & Selling: Absolute P/E EPS EY % OSCILLATOR Institutional Sponsorship Market Direction

2 Due-Diligence Measures 2003/12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/31 5-Y Avg. 10-Y Growth 5-Y Growth Sparkline Grade Profitability Consistently increasing Sales 1,903,528 1,835,502 1,864,391 1,951,038 2,184,873 2,115,438 2,008,858 2,272,995 2,660,243 2,971,723 2, % 9.61% Revenue (Pref. 8%) Consistent and increasing ROE 5.32% 8.64% 7.35% 6.53% 5.94% 6.64% 7.85% 9.39% 9.08% 10.41% 9.42% 5.02% 10.45% (Pref. 15%) Consistent and increasing ROIC 2.95% 2.04% % -5.49% -4.65% -9.92% % % 3.91% 3.30% -2.01% 0.51% 0.40% (Pref. 15%) Cash Flow Consistently increasing Net Cash 4,328,121-2,263, ,481 4,200, ,384-1,228,706 1,596,041 2,468,043 1,141,649-2,651, % % from Ops. (Pref. 8%) Consistent and increasing CROIC N/A % % % 2.01% 39.12% % % 7.96% % % -2.16% -0.18% (Pref. 15%) Financial Risks Increasing Debt Coverage Ratio N/A % % % % % % % % % 73.38% N/A -4.12% (Pref. 150%) Increasing Quick Ratio (Pref. 100%) 45.80% 45.30% 83.83% 90.09% 92.33% 90.65% 85.38% 89.08% 36.82% 34.69% 52.37% -2.32% %

3 Growth Quality Column1 2003/12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/31 Revenue % Year over Year -3.57% 1.57% 4.65% 11.99% -3.18% -5.04% 13.15% 17.04% 11.71% 3-Year Average -1.04% 3.05% 7.93% 4.05% -4.20% 3.59% 14.04% 13.40% 5-Year Average 3.37% 4.43% 2.30% 2.21% 4.66% 9.61% 10-Year Average 4.64% EBIT % Year over Year % -4.83% -5.08% -1.94% 26.75% 17.70% 25.71% 17.47% 12.26% 3-Year Average % -5.08% -3.59% 10.87% 20.00% 19.59% 19.49% 13.83% 5-Year Average % 1.60% 8.74% 16.18% 19.71% 17.27% 10-Year Average 7.63% Net Income % Year over Year 80.84% 2.37% -3.70% 10.95% 16.28% 27.01% 31.41% 3.96% 23.81% 3-Year Average 30.79% -0.72% 3.31% 12.74% 19.50% 25.61% 15.60% 12.62% 5-Year Average 13.50% 5.47% 11.67% 19.24% 19.16% 18.41% 10-Year Average 15.27% EPS % Year over Year 76.79% % -6.00% 3.41% 2.56% 26.94% 31.43% 3.94% 23.80% 3-Year Average 21.30% % -1.42% 2.94% 13.19% 25.59% 15.60% 12.61% 5-Year Average 5.90% -3.22% 5.30% 14.05% 16.64% 18.40% 10-Year Average 10.29% Cash From Ops. % Year over Year % % % % % % 20.53% % % 3-Year Average % % 15.18% % 25.49% 64.03% -5.66% % 5-Year Average 8.59% 29.04% 0.55% -0.73% 20.74% % 10-Year Average % Free Cash Flow % N/A Year over Year % % % % % 20.18% % % 3-Year Average % 15.00% % 25.88% 64.41% -6.19% % 5-Year Average 29.01% 0.56% -0.64% 20.75% % 10-Year Average % 3,500,000 Growth Quality 5,000,000 3,000,000 2,500,000 4,000,000 3,000,000 2,000,000 2,000,000 1,000,000 1,500, ,000, ,000-1,000,000-2,000,000-3,000, Revenue EBIT Net Income Cash From Ops. FCF -4,000,000

4 Stock vs Sector BANKS Stock Board Market Cap PE Dividend Yield EPS ROE ROR ROTA AFFIN M AFG M AMBANK M BIMB M CIMB M HLBANK M HLFG M MAYBANK M PBBANK M RHBCAP M Stock vs Sector % % % % % 80.00% 60.00% 40.00% 20.00% 0.00% 5.25% 13.97% 26.84% 17.26% 16.42% 52.74% 33.89% Sales - 5Y Growth EPS - 5Y Growth Debt to Equity - 5Y Avg Net Profit Margin - 5Y Avg 9.13% 22.55% ROE - 5Y Avg Company Sector

5 Economic Moat Area Key Ratios Monopoly situation - Brand leadership / Operating strategy Barriers to Entry Marketship leadership - Comments Net Interest Margin We continue to see some downside on Affin s yield on loans due to ongoing competition in some key areas such as corporate loans, mortgages and non-national HPs. On a positive note, we observe that a large chunk (c.43%) of AHB s loans are pegged to a fix rates, thus providing a cushion against narrowing NIM or any potential downward revision in BNM s OPR on the back of the weak macro environment. 2. Cost to income ratio Affin s cost-to-income (CTI) ratio of 47.7% is in tandem with the industry s average of 47.4%. To recap, Affin s 1Q FY12 operating cost increased by 3.3% from a year ago on the back of higher personnel and establishment costs, with 2.8%YoY and 3.3% YoY increase respectively. Personnel cost makes up 58% of total operating expenses, followed by establishment costs with 27%. Despite that, the acceleration in operating expenses is well supported by healthy income growth, hence leading to stable CTI of between 46% and 48%. Management is looking to maintain CTI at 45% to 50% within our FY12-14 CTI assumption of 46%- 47%. 3. Tier 1 capital ratio/core capital ratio AFG s capital position remained healthy, backed by Total Capital Ratio and Common Equity Tier-1 Capital Ratio of 14.1% and 11.6% respectively. 4. Net/Gross Impaired Loans In terms of asset quality, the group s gross impaired loans ratio improved slightly from 2.3% to 2.2% (Dec 2012). The gross impaired loans ratio is now within management s FY13 target of 2.2%. The loan loss coverage reduced slightly to 70.9% from 71.0% as at end December. - High start-up costs and hard to build product differentiation Economic Moat Given Affin s bank smallish size, we believe it would be challenging for the group to compete with its larger peers moving forward. Despite that, the group s operation matrices are improving, thanks to an intensive transformation programme which the group undertook in 2005 to strengthen its balance sheet and address its massive nonperforming loans problem. Today, the bank has successfully brought down its impaired loans ratio to 2.5% - closer to the industry s 2.1%. As at 31 March 2012, Affin Bank is the 7th largest anchor bank in the country with an asset size of RM56.6m and 97 bank branches nationwide.

6 Future Growth Strategy/Drivers Source Annual Report Analyst Reports Future Growth Strategy/Drivers An immediate concern for financial institutions in Malaysia is on-going globalisation and liberalisation of the financial markets, as outlined in the Financial Sector Masterplan. This will see the entry of new and potentially bigger banks, brokerages and insurance companies. To face the ensuing competition, AHB plans to leverage on our strengths as an integrated financial services provider to offer cross-selling opportunities and other synergies to all our subsidiaries. We also plan to expand regionally, as we believe there are long term prospects within Asia in which we can participate. Despite challenging and uncertainties spurred by the weak global environment, management remains cautiously optimistic, guiding for FY13 ROE and ROA of 10.1% and 1.1% respectively. We believe the targets are reasonable and achievable as we forecasts ROE and ROA of 10.6% and 1.1% for AHB. We believe earnings will be underpinned by decent double digit loans growth, stronger-than-expected non-nii and income from Islamic Banking, stable asset quality all on the back of modest expense growth. Loans growth would be spurred by the drawdown of ETP related projects. Downside risks include softer NIMs which we believe will largely be due to rising cost of funds for AHB. Elsewhere, management is expecting stable asset quality with gross impaired loans envisaged to improve slightly to 2.2% from 2.3% in FY12.

7 Risk Management Source Annual Report Risks Main challenge is the thinning of net interest margins, which we are managing by placing greater emphasis on fee-based income. ABB has been increasing its fee based income and this will remain one of its main KPIs in the coming years. ABB will also focus on industries with high growth potential which have been targeted by the Economic Transformation Programme (ETP) while further tapping into the retail and SME segments. Prospects for the Islamic banking sector remain positive, as we believe heightened competition will catalyse further growth and innovation in products and customer service, thus strengthen the Islamic finance ecosystem. Mindful of continued global uncertainties, AIBB remains optimistic of sustained capital market activity in Malaysia driven by consumption and private sector investment. Analyst Reports Euro debt crisis We note rising cautiousness surrounding the current crisis in European region, possibly leading to further deterioration in the regions exports due to falling demand. Even though Malaysia s direct exposure to Euro region is not substantial, however, the indirect relation may have considerable impact towards our economy. For Affin, this might affect its relationships with its bigger foreign related customers, such as their customers in the passenger vehicles segment. In addition, the crisis is also affecting the current market sentiments, where investors around the globe are being cautious about the potential outcomes. Interest rates environment The decreasing trend of average lending rate might indicate intense competition within banks in attracting loans from customers with good rating. This might affect Affin in competing with the larger banks, in terms of net interest margin. As the larger banks with bigger funds being able to attract customers by offering lower rates, Affin s market share of loan might be hurt in the upcoming periods. Domestic risks Global economic slowdown and uncertainties will pose the risk whereby domestic unemployment could rise should the there be a spillover effect. As at April, unemployment rate stood at 3.0%. If there is any steep increase in the near future, it may be translate to lower loans growth in future periods, as well as higher impaired loans. Rising household debt for the past few years has also been a major concern for local bank s asset quality. BNM s efforts in tightening credit further may hurt the profit margin for the local banks including Affin. These domestic risks may stunt Affin s mid to longterm growth strategies.

8 Shareholder Wealth Creation Buy and Monitor Return (Pref. 8%) 8% 3-Y Price CAGR % 10.33% 5-Y Price CAGR % 17.54% 10-Y Price CAGR % 14.30% Full History Price CAGR % 3.82% Consistent and increasing Dividend Payout % (Pref. 60%) 60% 45.00% 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% Dividend Payout % 0.00% Increasing EPS EPS

9 Increasing DPS DPS Historical Weekly Price Chart

10 Market Timing Absolute P/E EY % Oscillator Good PE Base PE2 Bad PE3 Expected Earnings Growth 11.00% % % 11 Dividend Yield 3.61% % % 4 Business Risk Factor Financial Risk Factor Earnings Visibility Factor Fair P/E Current EPS Fair Price Margin of Safety Buy P/E Buy Price Expected DPS % Expected Dividend Yield 4.82% 5.37% 6.08% Sell P/E Sell Price High EY% Price ($) Green Zone EY% 15.47% Green Zone Price($) RM2.65 Low Trading Range 6.13% 14.86% Price ($) RM % 9.96% Price ($) RM % Low Red Zone EY% 9.35% Red Zone Price($) RM4.39 High Buy Under 2.76 Sell Above 4.12

11 The current quarter's EPS is up more than 15% from the same quarter the year before Quarterly EPS Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Mar Mar Growth -9.18%

12 Notes Created Date Note 21/06/2013 Due to growth rate of cash flow is not consistent, thus DCF analysis is not really applicable.