PP 7767/09/2010(025354)

23 August 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
23 August 2010
MARKET DATELINE

Affin Holdings Share Price

Fair Value
:
:
RM3.05
RM4.10
Low Allowance For Impairment Of Loans Helps Beat Recom : Outperform
(Maintained)
Estimates
Table 1 : Investment Statistics (AFFIN; Code: 5185) Bloomberg: AHB MK
Net EPS Net Net
FYE PBT Profit EPS Gwth PER BVPS P/Book C.EPS* DPS Div Yld ROE
Dec (RMm) (RMm) (sen) (%) (x) (RM/s) (x) (sen) (sen) (%) (%)
2009 497.2 371.8 24.9 27.0 12.3 3.17 1.0 - 6.4 2.1 8.1
2010f 646.7 483.7 32.4 30.1 9.4 3.43 0.9 29.1 6.4 2.1 9.8
2011f 687.8 514.5 34.4 6.4 8.9 3.71 0.8 33.0 6.4 2.1 9.6
2012f 712.5 533.0 35.7 3.6 8.6 4.00 0.8 35.8 6.4 2.1 9.3
Main Market Listing / Trustee Stock / Non-Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ 2QFY10 results beat expectations yet again ... Affin’s 2Q10 net profit RHBRI Vs. Consensus
of RM112m (+24% yoy; -18% qoq) beat our and consensus estimates with Above
In Line
1H net profit of RM247m (+36% yoy) accounting for 60% of our and 57%
Below
of consensus full-year net profit forecasts. This was notwithstanding a
RM30m provision charge for a legal case incurred during the quarter, Issued Capital (m shares) 1,494.6
partly cushioned by a gain on dilution of interest in associate of RM8m. The Market Cap (RMm) 4,558.5
key variance was due to lower-than-expected impairment allowance on Daily Trading Vol (m shs) 1.6
loans (1H pre-impairment profit was in line, making up 48% of our full- 52wk Price Range (RM) 1.83 - 3.29

year estimates). As expected, Affin did not declare any dividend. Major Shareholders: (%)
LTAT 35.7
♦ … with allowance for impairment of loans staying low. Excluding the Boustead Holdings 22.4
abovementioned “one-offs”, net profit would have been flat qoq (+49% Bank of East Asia 20.7
yoy) with lower non-interest income (-17% qoq due to lower gains from
FYE Dec FY10 FY11 FY12
sale of securities) offset by lower individual impairment allowances. We do
EPS chg (%) 17.7 16.4 12.5
note that Affin had paid a total sum of RM48.2m for the legal suit Var to Cons (%) 11.2 4.2 (0.4)
(currently under appeal), which comprise RM30m together with interest
and costs. We would need to get further clarity from management for the PE Band Chart
reason behind the difference in the provision made and amount paid.
PER = 16x

♦ Results highlights. 2Q10 loan growth momentum was sustained at

PER
PER
=
=
13x
11x
+4.8% qoq and +15.4% yoy (1Q10: +4.6% qoq; +13.7% yoy), driven by PER = 8x

loans for HP (+6.5% qoq; +20.1% yoy) and purchase of non-residential

property (+17.4% qoq; +55.1% yoy). Annualised loan growth was 19.2%,
well ahead of management’s 15% target and supported by deposit growth
of 17% (annualised, which mainly came from FD and money market
deposits). Consequently, Affin’s LD ratio remained at a comfortable 80.2%.
Relative Performance To FBM KLCI
NIMs were broadly stable qoq (14-17bps lower yoy) but CIR trended up
qoq to 48.7% (1Q10: 45.6%; 2Q09: 49.1%). Impairment allowances
(excluding the RM30m provision) stayed low qoq and yoy largely due to Affin Holdings

lower individual impairment allowance and higher recoveries (yoy basis).

♦ Asset quality and capital ratios. Gross impaired loans ratio trended
down qoq by 100bps to 3.6% as at end-Jun mainly due to higher write-offs
during the quarter. We note an uptick in gross impaired loans formation to FBM KLCI

158bps (annualised), from 100bps in the previous quarter (2Q09: 42bps).

CAR and RWCR ratios stood at 11.5% and 13.2% respectively.
♦ Forecasts. We have raised our FY10-12 net profit forecasts by 12.5-
17.7% mainly after lowering our credit cost assumptions to 38-44bps p.a.
(61-76bps previously). David Chong, CFA
♦ Investment case. Following the earnings revision above, we have raised (603) 9280 2186
our fair value to RM4.10 from RM3.55, which is based on unchanged target david.chong@rhb.com.my
CY11 PER of 12x. We reiterate our Outperform call on the stock.

Please read important disclosures at the end of this report. Page 1 of 6

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 23 August 2010

Table 2 : Quarterly Results

QoQ YoY
FYE Dec (RMm) 2Q09 1Q10 2Q10 (%) (%) Comments
Net Interest Income 233.9 240.8 249.9 3.7 6.8 Higher mainly due to +4.8% qoq and +15.4% yoy loan
(+ Islamic Banking) growth (see Table 5). Unadjusted NIM (excluding Islamic
income) was up 2bps qoq but down 17bps yoy.

Non-interest Income 74.2 88.3 73.2 (17.1) (1.3) Lower gains from AFS securities realised during the
(Net of impairment quarter (2Q10: RM3.4m vs. 1Q10: RM18.7m).
losses from
securities portfolios)

Operating Income 308.1 329.1 323.1 (1.8) 4.8

Less: Overheads (151.2) (149.9) (157.5) 5.1 4.2 Relatively stable qoq and yoy.
Pre-impairment 156.9 179.2 165.6 (7.6) 5.5
Profit

Less: Impairment (37.8) (12.4) (19.2) 54.3 (49.2) 2Q10 includes RM30m provision for legal case.
losses on loans,
advances and Excluding this, the lower impairment charge mainly
financing reflects lower individual impairment allowance of RM21.4m
(1Q10: RM43.4m; 2Q09 SP: RM66.9m). Recoveries were
also higher yoy (RM47.6m vs. 2Q09: RM32.5m).

2Q credit cost was -4bps (excluding provision for legal

case) vs. 5bps and 17bps in 1Q10 and 2Q09 respectively.

Annualised impaired loan formation stood at 158bps vs.

100bps in 1Q10 and 42bps in 2Q09.

Operating Profit 119.1 166.8 146.4 (12.2) 22.9

Associates 3.8 10.6 7.9 (24.9) >100 Includes one-off gain on dilution of interest in associate of
RM8m arising from the acquisition of the entire share
capital of BH Insurance by AXA Affin General Insurance.
Pretax Profit 122.9 177.3 154.3 (13.0) 25.6

Less: Tax (33.1) (42.0) (42.6) 1.5 28.7

Effective Tax Rate 26.9 23.7 27.6 2Q10 above statutory tax rate due to, we believe,
(%) expenses such as the provision for legal suit being
disallowed for tax purposes.
Net Profit 89.8 135.3 111.7 (17.5) 24.4
Source: Company, RHBRI

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Table 3 : Cumulative Results

YoY
FYE Dec (RMm) 1HFY09 1HFY10 (%) Comments
Net Interest Income 453.9 490.7 8.1 Primarily driven by strong loan growth of +15.4% yoy (mainly driven by
(+ Islamic Banking) SMEs and retail - see Table 5 for breakdown) and +18.2% growth in Islamic
income.

Non-interest Income 135.7 161.5 19.0 Led by:

(+ Impairment 1. higher brokerage fees (RM29.2m vs. 1H09: RM19m);
losses on securities) 2. higher gains realised from AFS securities (RM22.1m vs. 1H09: RM4.2m);
and
3. forex profit (RM40m vs. 1H09: RM29.2m),
partly offset by lower MTM gains (-RM0.5m vs. 1H09: RM14.8m).
Operating Income 589.6 652.2 10.6

Less: Overheads (296.1) (307.4) 3.8 Overall well under control.

Pre-impairment 293.5 344.8 17.5
Profit

Less: Impairment (58.7) (31.6) (46.1) Lower due to:

losses on loans, 1. Lower individual allowance of RM64.8m vs. SP of RM124.1m;
advances and 2. Higher recoveries of RM98.3m vs. 1H09: RM65.7m,
financing partly offset by RM30m provision for legal case.

Operating Profit 234.8 313.1 33.4

Associates 8.4 18.5 >100 Includes one-off gain on dilution of interest in associate of RM8m.
Pretax Profit 243.2 331.6 36.4

Less: Tax (61.8) (84.6) 37.0

Effective Tax Rate 25.4 25.5
(%)
Net Profit 181.4 247.0 36.2
Source: Company, RHBRI

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 23 August 2010

Table 4 : Ratio Analysis

FYE Dec 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10

Asset Quality (%)
Gross impaired loans/NPL Ratio 5.78 5.84 4.77 5.17 3.71 4.59 3.60
Net impaired loans/NPL Ratio 3.20 3.38 2.94 3.11 2.20 3.40 3.16
Individual allowance/impaired loans (SP / NPL) 46.1 43.6 39.5 41.1 41.6 26.9 12.8
Collective allowance/net loans (GP / Net Loans) 1.51 1.51 1.50 1.50 1.50 1.99 1.82
Loan Loss Coverage 71.6 68.8 70.4 69.6 81.5 69.7 63.0
Core Capital Ratio 11.1 12.4 11.6 13.1 12.7 11.9 11.5
RWCAR 13.9 14.7 13.8 15.4 13.8 14.0 13.2

Margins (%)
Yields On Earning Assets 4.81 4.35 4.08 4.06 4.13 3.86 4.05
Avg. Cost of Funds 2.71 2.39 1.96 1.88 1.89 1.94 2.13
Interest Spread 2.11 1.96 2.12 2.17 2.24 1.92 1.92
Net Interest Margins (ex-Islamic Inc) 2.27 2.13 2.27 2.32 2.39 2.08 2.10
Adjusted Net Interest Margins (+ Islamic Inc) 2.75 2.57 2.69 2.83 2.86 2.54 2.55

Profitability (%)
ROE 7.6 8.2 7.9 9.1 7.1 11.2 9.0
ROA 0.91 0.99 0.96 1.12 0.86 1.35 1.08
Cost / Income Ratio 59.2 51.5 49.1 46.1 44.1 45.6 48.7
Expenses / Avg. Assets 1.56 1.56 1.62 1.60 1.58 1.48 1.51
Provisions / Avg. Net Loans (0.40) 0.41 0.72 0.75 1.57 0.22 0.32

Liquidity (%)
Loan Deposit Ratio 74.0 75.2 75.8 75.2 78.7 80.5 80.3
Net Loan Growth (qoq) 3.5 2.8 4.0 1.1 4.5 5.1 5.6
Deposit Growth (qoq) 7.1 1.2 3.2 1.8 (0.1) 2.2 6.1
Source: Company, RHBRI

Table 5 : Gross Loan Book Breakdown

FYE Dec 2Q09 3Q09 4Q09 1Q10 2Q10 qoq (%) yoy (%)
Purchase of securities 366.5 364.2 337.3 315.3 302.3 (4.1) (17.5)
Purchase of transport vehicles 6,117.4 6,259.6 6,619.2 6,893.2 7,344.3 6.5 20.1
Purchase of residential property 3,437.3 3,475.2 3,518.1 3,584.7 3,691.3 3.0 7.4
Purchase of non-residential property 1,535.0 1,570.3 1,605.2 2,028.3 2,381.6 17.4 55.1
Purchased of fixed assets 227.6 238.8 274.7 296.2 271.8 (8.2) 19.4
Personal uses 752.2 766.2 756.4 775.5 767.8 (1.0) 2.1
Credit cards 97.2 96.9 96.5 94.8 99.2 4.6 2.0
Purchase of consumer durable goods 1.5 1.4 1.4 1.2 1.1 (7.2) (25.3)
Construction 439.4 621.2 706.8 773.1 785.4 1.6 78.7
Working capital 7,478.5 8,374.2 8,708.2 9,101.9 9,248.8 1.6 23.7
Other purpose 1,586.1 571.6 574.5 395.5 535.6 35.4 (66.2)
Total 22,038.9 22,339.7 23,198.2 24,259.7 25,429.2 4.8 15.4
Source: Company, RHBRI

Table 6 : Gross Impaired Loans/NPLs By Sector

FYE Dec Gross Impaired Loans/NPLs (RMm) Gross Impaired Loans/NPL Ratio (%)
Sep 09 Dec 09 Mar 10 Jun 10 Sep 09 Dec 09 Mar 10 Jun 10
Purchase of securities 4.1 3.7 3.7 3.9 1.1 1.1 1.2 1.3
Purchase of transport vehicles 78.9 86.4 85.9 58.4 1.3 1.3 1.2 0.8
Purchase of residential property 391.7 341.9 364.6 372.5 11.3 9.7 10.2 10.1
Purchase of non-residential property 118.7 51.7 53.4 51.4 7.6 3.2 2.6 2.2
Purchased of fixed assets 5.0 4.6 4.6 4.6 2.1 1.7 1.6 1.7
Personal uses 23.6 18.9 17.3 19.5 3.1 2.5 2.2 2.5
Credit cards 1.2 0.9 0.6 0.7 1.2 0.9 0.7 0.7
Purchase of consumer durable goods 0.0 0.0 0.0 0.0 2.6 2.4 2.5 2.7
Construction 35.5 33.1 31.8 75.0 5.7 4.7 4.1 9.5
Working capital 440.1 279.5 469.7 312.3 5.3 3.2 5.2 3.4
Other purpose 55.2 39.8 84.2 19.8 9.6 6.9 21.3 3.7
Total 1,154.1 860.7 1,115.9 918.1 5.2 3.7 4.6 3.6
Source: Company, RHBRI

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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 969.9 1,045.0 1,124.6 1,179.4 Asset Quality (%)
(+ Islamic Banking) Gross impaired loans ratio 3.50 3.30 3.10
Non-interest Income 304.3 319.6 335.5 352.3 Net impaired loans ratio 2.99 2.90 2.72
Operating Income 1,274.2 1,364.5 1,460.1 1,531.7 Ind. allow / Impaired loans 15.0 12.5 12.5
Collective allow. / Net Loans 1.81 1.76 1.76
Less: Overhead Loan Loss Coverage 66.4 65.5 69.0
Expenses (604.5) (634.7) (666.5) (699.8) Core Capital Ratio 12.0 11.8 11.8
Pre-impairment RWCAR 13.6 13.3 13.3
Profit 669.7 729.8 793.7 832.0
Margins (%)
Less: Impairment Yields On Earnings Assets 4.05 4.03 4.00
losses on loans (185.1) (95.9) (118.8) (133.1) Avg. Cost Of Funds 2.03 2.03 2.03
Operating Profit 484.7 633.9 674.8 698.9 Interest Spread 2.02 2.00 1.97
Un-adj NIM (ex-Islamic Inc) 2.21 2.18 2.14
Associates 12.5 12.7 13.0 13.7 Adjusted NIM (+Islamic Inc) 2.64 2.60 2.54
Pretax Profit 497.2 646.7 687.8 712.5
Profitability (%)
Less: Tax (125.3) (163.0) (173.3) (179.6) ROE 9.8 9.6 9.3
Effective Tax Rate 25.2 25.2 25.2 25.2 ROA 1.15 1.10 1.06
(%) Cost / Income Ratio 46.5 45.6 45.7
Profit After Tax 371.8 483.7 514.5 533.0 Expenses / Avg. Assets 1.50 1.42 1.38
Provisions / Avg. Net Loans 0.40 0.43 0.45
Minorities 0.0 0.0 0.0 0.0
Net Profit 371.8 483.7 514.5 533.0 Liquidity (%)
Source: Company data, RHBRI estimates Loan Deposit Ratio 82.7 82.8 82.8
Net / Gross Loan Growth 16.0 10.1 8.0
Deposit Growth 10.0 10.0 8.0
Source: RHBRI estimates

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 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.

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

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

Industry/Sector Ratings

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

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

Underweight = Industry expected to underperform the 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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