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Wednesday, July 4, 2012

A short commentary on Affin (RM3.50; TP: RM4.30)

Affin made RM166mil net profit for 1Q2012.  Excluding the one-off loan loss allowance of RM13.8mil, recurring net profit should be around RM152mil. Annualized net profit could be at RM600mil in 2012. Just for conservative sake, if we just assume RM550mil, PER’12 will be at 9.5x. Having said that, there could be more earnings surprises this year as there could be more write backs of loan loss provisions (LLP) due to overly conservative estimates by management in the past.

In addition, Affin also went through some impressive improvements over the last 5 years. Gross non-performing loan (NPL) ratio declined drastically from 14.3% in 2007 to just 2.9% currently vs industry’s decline from 6.5% to 2.5%. ROE rose from just 6.5% in 2007 to 11.7% in 1Q12 while earnings 5-year CAGR is at 17%.

Current PER and PBV is just at 9.5x and 0.9x respectively, below industry average PER & PBV of 12.4x and 1.9x respectively. The management had just announced its dividend policy of 50% payout two months back. Thus, dividend yield should be around 5.3% at current price, which is higher than the banks’ average of 4%. By putting a PBV of 1.2x (industry average at 1.9x!!), Affin should be valued at RM4.60. If PER of 11x is attached (industry average at 12.4x), Affin’s fair value should be at RM4.00. On average, Affin should be valued at RM4.30, similar to what Kenanga Research had suggested.

The stock has been very hot over the past few weeks, some M&A activities coming??? BEA had earlier dispelled rumors of its intention to sell Affin’s stake. So, will BEA be looking at increasing its stake in Affin? Affin is also contemplating expanding into Indonesia but will await a clearer ruling on foreign ownership by the Indonesian govt. Earlier, it had an agreement with PT Bank Ina Perdana but had expired last year. Having said that, with or without M&A, Affin is worth investing based on its undervaluation in terms of PER and PBV, attractive dividends coupled with its turnaround story.

Market Data
Share price: RM3.50
Shares issued: 1.495bil
Market cap: RM5,231mil
PER'12: 9.1x
PBV: 0.9x

Major shareholders: 
LTAT - 35.2%
BEA - 23.5%
Boustead - 20.7%
EPF - 5.8%