PP 7767/09/2010(025354)

1 March 2010

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts N o t e
1 March 2010
MARKET DATELINE

Affin Holdings Share Price

Fair Value
:
:
RM2.64
RM3.03
Cheapest Valuations Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (AFFIN; Code: 5185) Bloomberg: AHB MK

Net EPS
FYE PBT Profit EPS Gwth PER Book P/Book C.EPS* Div Div Yld ROE
Dec (RMm) (RMm) (sen) (%) (x) (RM/s) (x) (sen) (sen) (%) (%)
2009 497.2 371.8 24.9 27.0 10.6 3.2 0.8 - 8.5 3.2 8.1
2010f 549.5 411.0 27.5 10.5 9.6 3.2 0.8 27.0 8.5 3.2 8.6
2011f 591.0 442.1 29.6 7.6 8.9 3.3 0.8 31.0 8.5 3.2 9.0
2012f 633.2 473.6 31.7 7.1 8.3 3.4 0.8 - 8.5 3.2 9.5
Main Market Listing / Trustee Stock / Non-Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ 4QFY09 results in line. 4QFY09 net profit of RM84.2m (-20.8% qoq; RHBRI Vs. Consensus
+0.1% yoy) took FY09 net profit to RM371.8m (+27% yoy) or 99.5% and Above
101% of our and consensus forecasts respectively. The company did not In Line
declared any final dividend as it has already announced higher yoy Below

dividend for FY09 in 3QFY09 results announcements.

Issued Capital (m shares) 1,494.4

♦ Fifth consecutive quarter of elevated PBT (above RM110m) on the

Market Cap (RMm) 3,945.1
Daily Trading Vol (m shs) 1.6
back of three consecutive quarters of expansion in NIM, continued double-
52wk Price Range (RM) 1.21 – 2.68
digit loan growth (five consecutive quarters), revival of non-interest Major Shareholders: (%)
income (four straight quarters of sequential increase) and stable LTAT 35.7
overheads. These were partly offset by higher LLP in 4Q. For FY09, the Boustead Holdings 20.7
strong earnings growth was attributable to strong loan growth, higher NIM Bank of East Asia 21.2
and non-interest income, and well contained expenses. These more than
offset the jump in LLP (mainly due to lower SP write back and recovery). FYE Dec FY10 FY11 FY12
EPS chg (%) 0.7 (0.3) New
♦ Asset quality improved, more than nullify the jump in 3Q. Gross and Var to Cons (%) 1.9 (4.6) -
net NPL ratios, absolute gross NPLs and NPL formation all improved
PE Band Chart
sequentially (see Tables 2, 3 & 6). Absolute gross NPL fell below the
RM1bn mark for the first time with all segments except HP reported lower
PER = 15x
amount. Recall we highlighted during our 3Q results review that the sharp PER = 12x
PER = 9x
jump in 3Q NPL (mainly from the business segment) may raise some PER = 6x
concerns, especially given its previous poor track record. However, the
latest results have quashed the concerns given that the latest sharp
improvement more than offset the deterioration in 3Q. Currently, its asset
quality ratios and amount are at the strongest ever levels.

♦ Forecasts. We have fine-tuned our FY10-11 forecasts following the FY09 Relative Performance To FBM KLCI

results. Our FY10 ROE projection (8.5%) is in line with management’s KPI
of 8.4% while our EPS projection of 25.7 sen is also the same as
Affin Holdings
management’s KPI.

♦ Investment case. With consistency in earnings over the last five

quarters, improvement in asset quality and strong loan growth, its
FBM KLCI
prospects are improving. Moreover, its high capital ratios suggest that
there could be more special dividend ahead. Although the legacy issue
(i.e. traditionally bad asset quality) could still deter investors’ interest, its
valuations (single-digit PER and 20% discount to book) remain the lowest
in our banking universe. Thus, we are maintaining our Outperform rating
on the stock. Fair value has been raised from RM3.00 to RM3.03 (post
Low Yee Huap, CFA
FY09 results fine-tuning) based on unchanged 11x CY10 EPS (5x discount
(603) 92802175
to sector and benchmark PER of 16x to account for the lowest ROE in the low.yee.huap@rhb.com.my
industry as well as low liquidity and small market capitalisation).

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Table 2. Quarterly Results

QoQ YoY
FYE Dec (RMm) 4Q08 3Q09 4Q09 Comments
(%) (%)
Net Interest Income 229.3 251.7 264.3 5.0 15.3 Higher due to +3.8% qoq and +11.6% yoy loan growth
(+ Islamic Banking) (mainly from the business segment - see Table 5),
improvement in NIM (see Table 3) and sustained Islamic
income.

Non-interest Income 14.5 79.3 89.3 12.6 517.5 Higher due to:
(Net of impairment 1. Higher fee income of RM45.3m (3Q09: RM51.7m;
losses from 4Q08: RM33.3m); and
securities portfolios) 2. MTM gain of RM3.5m (3Q09: RM2.4m; 4Q08 loss:
RM29.8m);
3. Lower impairment loss of RM5.7m (3Q09: RM4.9m;
4Q08: RM23.2m); and
4. RM18m gain from disposal of foreclosed properties
(3Q09: RM0.9m; 4Q08: RM0m).

Partly offset by:

1. Lower forex gain of RM16.4m (3Q09: RM16.5m; 4Q08:
RM20m); and
2. Lower gain from sale of securities of RM2.9m (3Q09:
RM4.3m; 4Q08: RM9.2m);
Operating Income 243.8 331.0 353.6 6.8 45.1

Less: Overheads -144.4 -152.5 -155.9 2.2 8.0 Higher across the board
Pre-provision 99.4 178.5 197.7 10.8 98.9
Profit

Less: Loan Loss 19.6 -40.2 -86.2 114.3 -539.8 Higher due to:
Provisions 1. Higher SP of RM121.3m (3Q09: RM77.2m; 4Q08:
RM99.5m);
2. Higher GP of RM14.4m (3Q09: RM4m; 4Q08: RM8.2m);
3. Lower SP write back of RM8.9m (3Q09: RM14m; 4Q08:
RM11.5m); and
4. Lower recovery of RM43.4m (3Q09: RM29.2m; 4Q08:
RM118.4m).

Credit charge of 32bps (3Q09: 16bps; 4Q08 write back:

14bps).

Annualised net NPL formation declined significantly to

139bps vs. 266bps in 3Q09 and 133bps in 4Q08.
Operating Profit 119.0 138.3 111.6 -19.3 -6.2

Associates -3.4 1.7 2.4 46.9 -171.1

Pretax Profit 115.6 140.0 114.0 -18.6 -1.4

Less: Tax -31.5 -33.7 -29.8 -11.5 -5.2

Effective Tax Rate 27.2 24.1 26.2
(%)
Net Profit 84.1 106.3 84.2 -20.8 0.1
Source: Company, RHBRI

Table 3. Ratio Analysis

FYE Dec 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09

Asset Quality (%)
Gross NPL Ratio 8.50 7.25 5.78 5.84 4.77 5.17 3.71
Net NPL Ratio 6.19 4.87 3.20 3.38 2.94 3.11 2.20
SP / NPL 29.00 34.55 46.09 43.57 39.49 41.15 41.60
GP / Net Loans 1.52 1.52 1.51 1.51 1.50 1.50 1.50
Loan Loss Coverage 46.45 55.03 71.58 68.75 70.43 69.64 81.49
Core Capital Ratio 10.93 11.51 11.08 12.36 11.60 13.05 12.68
RWCAR 13.83 14.42 13.88 14.70 13.84 15.41 13.84

Margins (%)
Yields On Earning Assets 4.62 4.79 4.81 4.35 4.08 4.06 4.06
Avg. Cost of Funds 2.70 2.84 2.71 2.39 1.96 1.88 1.88
Interest Spread 1.92 1.96 2.11 1.96 2.12 2.17 2.17
Net Interest Margins (ex-Islamic Inc) 2.09 2.13 2.27 2.13 2.27 2.32 2.39
Adjusted Net Interest Margins (+ Islamic Inc) 2.50 2.58 2.75 2.57 2.69 2.83 2.86

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Profitability (%)
ROE 5.75 4.95 7.65 8.21 7.89 9.11 7.11
ROA 0.67 0.58 0.91 0.99 0.96 1.12 0.86
Cost / Income Ratio 49.84 54.27 59.22 51.49 49.08 46.07 44.08
Expenses / Avg. Assets 1.57 1.57 1.56 1.56 1.62 1.60 1.58
Provisions / Avg. Net Loans 1.22 1.00 -0.40 0.41 0.72 0.75 1.57

Liquidity (%)
Loan Deposit Ratio 69.92 76.59 73.98 75.15 75.78 75.25 78.66
Net Loan Growth (qoq) 2.84 5.49 3.45 2.75 4.01 1.11 4.46
Deposit Growth (qoq) -0.79 -3.71 7.11 1.16 3.15 1.82 -0.07
Source: Company, RHBRI

Table 4. Cumulative Results

YoY
FYE Dec (RMm) FY08 FY09 Comments
(%)
Net Interest Income 860.3 969.9 12.7 Primarily driven by loan growth of +11.6% yoy, higher Islamic income and
(+ Islamic Banking) expansion in NIM.

Non-interest Income 236.8 304.3 28.5 Higher mainly arising from:

1. Higher fee income of RM173.5m vs. RM166.3m;
2. MTM gain of RM20.9m vs. loss of RM44.8m;
3. Lower impairment loss of RM13.9m vs. RM28.6m; and
4. Gain from disposal of foreclosed properties of RM18.9m vs. RM2.9m.

Partly offset by:

1. Lower gain from sale of securities of RM15.6m vs. RM37.3m; and
2. Lower forex gain of RM62.2m vs. RM72.7m
Operating Income 1,097.1 1,274.2 16.1

Less: Overhead -587.6 -604.5 2.9 Mainly from personnel and establishment costs.
Expenses
Pre-provision 509.5 669.7 31.4
Profit

Less: Loan Loss -100.5 -185.1 84.2 Higher mainly due to:
Provisions 1. Lower SP write back of RM48.5m vs. RM114.7m;
(+ impairment 2. Higher GP of RM37.2m vs. RM31.4m; and
write-backs) 3. Lower recovery of RM138.3m vs. RM240.8m.

Partly offset by lower SP of RM322.6m vs. RM415.8m.

Credit charge lower at 67bps vs. 35bps.

Annualised net NPL formation at 182bps vs. 107bps.
Operating Profit 409.1 484.7 18.5

Associates -4.8 12.5 -357.6

Pretax Profit 404.2 497.2 23.0

Less: Tax -111.4 -125.3 12.4

Effective Tax Rate 27.6 25.2
(%)
Net Profit 292.8 371.8 27.0
Source: Company, RHBRI

Table 5. Gross Loan Book Breakdown

FYE Dec 4Q08 1Q09 2Q09 3Q09 4Q09 qoq (%) yoy (%)
Construction 462.4 461.8 439.4 621.2 706.8 13.8 52.9
Purchase of landed properties
Residential 3,381.7 3,409.4 3,437.3 3,475.2 3,518.1 1.2 4.0
Non-residential 1,456.3 1,475.0 1,535.0 1,570.3 1,605.2 2.2 10.2
Purchase of securities 365.3 375.4 366.5 364.2 337.3 -7.4 -7.7
Purchase of transport vehicles 6,163.7 6,109.9 6,117.4 6,259.6 6,619.2 5.7 7.4
Fixed assets 114.4 264.6 227.6 238.8 274.7 15.0 140.0
Personnel use 764.6 753.5 752.2 766.2 756.4 -1.3 -1.1
Credit card 108.3 101.3 97.2 96.9 96.5 -0.5 -10.9
Consumer durables 1.8 1.7 1.5 1.4 1.4 -5.3 -25.9
Working capital 7,282.1 7,207.1 7,478.5 8,374.2 8,708.2 4.0 19.6
Others 686.5 1,174.3 1,586.1 571.6 574.5 0.5 -16.3
Total 20,787.2 21,334.1 22,038.9 22,339.7 23,198.2 3.8 11.6
Source: Company, RHBRI

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Table 6. NPLs By Sector

FYE Dec Gross NPLs (RMm) Gross NPL Ratio (%)
Mar 09 Jun 09 Sep 09 Dec 09 Mar 09 Jun 09 Sep 09 Dec 09
Construction 48.3 35.5 35.5 33.1 10.45 8.09 5.72 4.69
Purchase of landed properties
Residential 406.8 388.4 391.7 341.9 11.93 11.30 11.27 9.72
Non-residential 67.2 57.1 118.7 51.7 4.55 3.72 7.56 3.22
Purchase of securities 7.7 6.1 4.1 3.7 2.05 1.66 1.13 1.11
Purchase of transport vehicles 78.8 78.4 78.9 86.4 1.29 1.28 1.26 1.31
Fixed assets 27.5 1.3 5.0 4.6 10.38 0.58 2.09 1.69
Personnel use 26.9 21.7 23.6 18.9 3.57 2.89 3.08 2.50
Credit card 3.4 1.2 1.2 0.9 3.34 1.27 1.24 0.90
Consumer durables 0.1 0.0 0.0 0.0 6.07 2.59 2.64 2.42
Working capital 393.9 283.4 440.1 279.5 5.47 3.79 5.26 3.21
Others 185.6 177.1 55.2 39.8 15.81 11.17 9.65 6.92
Total 1246.2 1050.3 1154.1 860.7 5.84 4.77 5.17 3.71
Source: Company, RHBRI

Table 7. Earnings Forecasts Table 8. Ratio Analysis & Forecast Assumptions

FYE Dec (RMm) FY09 FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F

Net Interest Income Asset Quality (%)

(+ Islamic Banking) 969.9 1,034.7 1,083.1 1,139.0 Gross NPL 2.91 2.61 2.31
Non-interest Income 304.3 319.6 335.5 352.3 Net NPL 1.74 1.58 1.40
Operating Income 1,274.2 1,354.3 1,418.7 1,491.3 SP / NPL 41.00 40.00 40.00
GP / Net Loans 1.50 1.50 1.49
Less: Overhead Loan Loss Coverage 91.85 96.69 104.06
Expenses -604.5 -634.7 -666.5 -699.8 Core Capital Ratio 12.08 11.60 11.21
Pre-provision RWCAR 13.25 12.78 12.42
Profit 669.7 719.6 752.2 791.5
Margins (%)
Less: Loan Loss Yields On Earnings Assets 4.11 4.11 4.11
Provisions -185.1 -182.9 -174.3 -171.6 Avg. Cost Of Funds 2.03 2.03 2.03
Operating Profit 484.7 536.7 578.0 619.9 Interest Spread 2.08 2.08 2.08
Un-adj NIM (ex-Islamic Inc) 2.23 2.19 2.16
Associates 12.5 12.7 13.0 13.3 Adjusted NIM (+Islamic Inc) 2.67 2.62 2.59
Pretax Profit 497.2 549.5 591.0 633.2
Profitability (%)
Less: Tax -125.3 -138.5 -148.9 -159.6 ROE 8.59 9.03 9.46
Effective Tax Rate 25.2 25.2 25.2 25.2 ROA 0.99 0.99 0.99
(%) Cost / Income Ratio 46.87 46.98 46.92
Profit After Tax 371.8 411.0 442.1 473.6 Expenses / Avg. Assets 1.53 1.48 1.45
Provisions / Avg. Net Loans 0.78 0.69 0.63
Minorities 0.0 0.0 0.0 0.0
Net Profit 371.8 411.0 442.1 473.6 Liquidity (%)
Source: Company data, RHBRI estimates Loan Deposit Ratio 77.47 76.85 76.91
Net / Gross Loan Growth 8.33 8.11 8.08
Deposit Growth 10.00 9.00 8.00
Source: RHBRI estimates

Table 9. Sector Comparison

Bank Price FV PER (x) CAGR P/Book (x) ROE (%)
(RM/s) (RM/s) Rec CY08 CY09 CY10 (%) CY08 CY09 CY10 FY08 FY09 FY10
Public Bank - F 11.12 13.12 OP 14.4 14.8 13.0 10.6 3.9 3.4 2.9 27.3 24.5 24.2
Public Bank - L 11.10 13.12 OP 14.4 14.8 13.0 10.6 3.9 3.4 2.9 27.3 24.5 24.2
Maybank 6.97 8.96 OP 15.9 15.3 12.4 21.7 2.0 1.7 1.7 9.9 12.1 12.8
CIMB Group 13.02 16.24 OP 23.9 16.6 13.8 18.1 2.7 2.3 2.2 11.9 15.0 16.1
AMMB 4.90 6.13 OP 15.5 12.9 10.9 13.7 1.6 1.4 1.2 11.6 11.8 12.1
EON Capital 6.90 8.07 OP 35.8 14.0 12.8 11.2 1.5 1.3 1.2 4.2 10.1 10.0
Affin Holdings 2.64 3.03 OP 13.0 10.2 9.3 8.4 0.9 0.8 0.8 6.8 8.1 8.6
Hong Leong Bank 8.40 8.48 UP 16.1 14.8 14.9 1.5 2.5 2.2 2.0 16.7 14.8 13.4
AFG 2.78 3.27 OP 16.1 17.1 12.7 21.5 1.6 1.5 1.4 16.8 8.6 9.1
RHB Capital * 5.28 NR NR 11.5 11.1 9.6 7.8 1.5 1.3 1.2 13.3 12.3 13.0
Sector Wt. Avg. ^ 16.3 14.4 11.9 2.2 1.9 1.7 13.2 13.0 13.3
Sector Wt. Avg. (Ex-Maybank) 15.8 13.5 11.7 2.2 1.9 1.7 15.5 15.0 15.2
Sector Wt. Avg. (Ex-Maybank & PBB) 16.5 13.1 11.3 1.8 1.6 1.5 11.6 11.5 11.8
Source : RHB Research Institute, IBES Estimates
* Not under our coverage. IBES Estimates forecasts are used for companies not covered by RHB Research Institute.

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IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity
securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FB KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FB KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FB KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FB KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FB KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FB KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended
securities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the
actions of third parties in this respect.

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