AFFIN (5185) - Affin Holdings - Morphing
Target RM2.72 (Stock Rating: REDUCE)
During today’s briefing, management guided for a challenging operating environment in 2015. Strategically, it will be focusing on sustaining profit growth for the commercial banking business but it will be more aggressive in pushing for the expansion of its investment banking (IB) unit, with its larger scale after acquiring Hwang DBS Investment Bank last year. We are lowering our DDM-based target price (COE of 13%; LT growth of 4%) as we cut our assumed growth rate from 5.5% to 5% for the interim phase given the weaker outlook following the slowdown in Jan 15 loan growth. We still rate Affin as a Reduce, premised on the potential de-rating catalysts of (1) margin contraction, and (2) an expected upturn in credit costs. We prefer RHBCap.
What Happened
Today, Affin Holdings held an analysts briefing for its 4Q14 financial results. The management team led by its Group CEO, Dato’ Zulkiflee Abbas bin Abdul Hamid presented to a group of about 20 fund managers/analysts. The key highlights are the strategic focus and KPIs for FY15 as well as its aspirations to expand it investment banking business.
What We Think
We sensed that Affin has been evolving in the past 1-2 years with (1) the shifting of some of its lending focus from retail to SME loans, reflected by the swift expansion of SME loans in the past 1-2 quarters, and (2) growing its IB franchise. The increased focus on SME loans would help to mitigate the margin contraction. But we see this as a short-term remedy because this move is similar to a few other banks, which will heat up competition in this segment and push down the margins from SME loans in the longer term. In the briefing, management emphasised its aspirations to grow its IB business with the aim of being among the top five players in each business segment (brokerage, asset management etc.) by 2019. While we see this as a good move to increase the fee income contribution, the local IB market has been getting more competitive with the creation of bigger players through M&As and the lack of sustainable flow of big IB deals. Moreover, Affin IB does not have the regional platform to compete with the three biggest players.
What You Should Do
We advise investors to trim their exposure in this stock given the cloudy earnings outlook, reflected by our projected 9.6% decline in FY15 EPS.
Source: CIMB Daybreak - 10 March 2015
Target RM2.72 (Stock Rating: REDUCE)
During today’s briefing, management guided for a challenging operating environment in 2015. Strategically, it will be focusing on sustaining profit growth for the commercial banking business but it will be more aggressive in pushing for the expansion of its investment banking (IB) unit, with its larger scale after acquiring Hwang DBS Investment Bank last year. We are lowering our DDM-based target price (COE of 13%; LT growth of 4%) as we cut our assumed growth rate from 5.5% to 5% for the interim phase given the weaker outlook following the slowdown in Jan 15 loan growth. We still rate Affin as a Reduce, premised on the potential de-rating catalysts of (1) margin contraction, and (2) an expected upturn in credit costs. We prefer RHBCap.
What Happened
Today, Affin Holdings held an analysts briefing for its 4Q14 financial results. The management team led by its Group CEO, Dato’ Zulkiflee Abbas bin Abdul Hamid presented to a group of about 20 fund managers/analysts. The key highlights are the strategic focus and KPIs for FY15 as well as its aspirations to expand it investment banking business.
What We Think
We sensed that Affin has been evolving in the past 1-2 years with (1) the shifting of some of its lending focus from retail to SME loans, reflected by the swift expansion of SME loans in the past 1-2 quarters, and (2) growing its IB franchise. The increased focus on SME loans would help to mitigate the margin contraction. But we see this as a short-term remedy because this move is similar to a few other banks, which will heat up competition in this segment and push down the margins from SME loans in the longer term. In the briefing, management emphasised its aspirations to grow its IB business with the aim of being among the top five players in each business segment (brokerage, asset management etc.) by 2019. While we see this as a good move to increase the fee income contribution, the local IB market has been getting more competitive with the creation of bigger players through M&As and the lack of sustainable flow of big IB deals. Moreover, Affin IB does not have the regional platform to compete with the three biggest players.
What You Should Do
We advise investors to trim their exposure in this stock given the cloudy earnings outlook, reflected by our projected 9.6% decline in FY15 EPS.
Source: CIMB Daybreak - 10 March 2015
