Affin Holdings (SELL)

2QFY12 Results In Line

• Excluding exceptional items in 1Q, 1HFY12 results were in line with HLIB and consensus and 2QFY12 would have recorded a slight improvement of less than 5% qoq and yoy. 

• 1H growth driven by strong loans growth (but largely mitigated by lower NIM), non-interest income expansion, slower overheads expansion and loans provision write-back.
• Asset quality improved after temporary deteriorated in 1Q.  Capital ratios remained robust.
• Acquisition of Bank Muamalat, if materialized and funded by part equity, could set back its new dividend policy of 50%.
• Target price maintained at RM2.96 (Gordon Growth with ROE at 9.4 and WACC at 11.0%).
• Share price far exceeded our unchanged target price (RM2.96 - Gordon Growth with ROE at 9.4 and WACC at 11.0%) on M&A excitement. 
• Valuations now only slightly below AMMB and RHB Cap but with much lower ROE, downgrade to Sell.

Source: Hong Leong Investment Bank Research - 22 August 2012