This article first appeared in The Edge Financial Daily on March 5, 2018
Affin Bank Bhd
(March 2, RM2.43)
Maintain add with an unchanged target price (TP) of RM2.84: Affin Bank Bhd hosted an analyst briefing for the financial results of its fourth quarter of financial year 2017 (4QFY17) ended Dec 31, 2017. We are slightly more positive about the bank following the meeting as it stated that it had been making progress in its transformation under the Affinity programme and had reaped some benefits from this in several areas.
Under the Affinity programme, the bank implemented a new consumer credit scoring system that has enhanced its speed in loan approvals. For financial technology initiatives, it is looking at offering e-wallet services through a tie-up with WireCard, a payment solutions provider. To support this, it is also enhancing its services for retail and mobile Internet banking.
Affin also highlighted the strong performance of its asset management business under Affin Hwang Capital (AHC), which was the key driver of the group’s robust fee income growth. AHC recorded a 40% jump in its profit before tax to RM182.3 million in FY17, riding the sharp growth in its asset under management, and higher investment and trading income.
The bank guided that its adoption of the Malaysian Financial Reporting Standard 9 in 2018 would have about 10 to 20 basis points off its common equity Tier-1 capital ratio. This is lower than the average impact of 25 basis points guided by most of the other banks.
We retain our FY18 and FY19 earnings per share forecasts and TP of RM2.84. Also intact is our “add” recommendation, premised on its attractive valuations, and the benefits of its Affinity transformation programme. The downside risks to our call are a spike in gross impaired loan ratio and a slowdown in loan growth. — CGSCIMB Research, March 1