PP 7767/09/2010(025354)

Malaysia
RHB Research
3 March 2010
Corporate Highlights Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

New s Upda te
3 March 2010
MARKET DATELINE

Affin Holdings Share Price

Fair Value
:
:
RM2.75
RM3.03
Acquisition Of BH Insurance Recom : Market Perform
(Downgraded)

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) (%) (%)
2008 497.2 371.8 24.9 27.0 11.1 3.2 0.9 - 8.5 3.1 8.1
2009 549.5 411.0 27.5 10.5 10.0 3.2 0.8 27.0 8.5 3.1 8.6
2010f 591.0 442.1 29.6 7.6 9.3 3.3 0.8 31.0 8.5 3.1 9.0
2011f 633.2 473.6 31.7 7.1 8.7 3.4 0.8 - 8.5 3.1 9.5
Main Maket Listing / Trustee Stock / Non-Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ Acquisition of BH Insurance. Affin said that its 40%-owned associate Issued Capital (m shares) 1,494.4
AXA Affin General Insurance (AAGI) will acquire 80% of BH Insurance from Market Cap (RMm) 4,109.5
Boustead Holdings for RM362.6m cash (RM359m principal amount and Daily Trading Vol (m shs) 1.6
RM3.6m interest accrued) and 20% of BH insurance from Felda Marketing 52wk Price Range (RM) 1.21 – 2.75

Services for RM90.6m via issuance of 19m new shares (or 16% of AAGI’s Major Shareholders: (%)
LTAT 35.7
enlarged paid-up capital). Post acquisition, its stake in AAGI will be
Boustead Holdings 20.7
reduced from 40% to 33.6%.
Bank of East Asia 21.2
♦ Financial impact. Based on BH Insurance’s FY12/08 (the latest available
FYE Dec FY09 FY10 FY11
accounts) book and assuming that the book grew 10% in FY09, the
EPS chg (%) - - -
acquisition price of 1.4x book is cheap as compared with average historical Var to Cons (%) 1.9 (4.6) -
transacted price of 2.5x book. In terms of earnings, BH Insurance
reported a net profit of RM20.4m in FY08. Assuming its FY09-10 net profit PE Band Chart
grew by 10% p.a., it will only boost Affin FY10 net profit by 2% (assuming
PER = 15x
Affin does not need to inject additional funds into AAGI). PER = 12x
PER = 9x
♦ Positive. This is due to cheap acquisition price. Although impact on PER = 6x

earnings is marginal, the enlarged AAGI group would have larger mass and
will become circa 6th largest in the country (in terms of gross premium).
Moreover, BH Insurance more balance portfolio in FY08 (motor 28% of
premium, fire 27%, MAT 3.5% and others 41.5%) with claims ratio of
53.7% would help reduce AAGI’s higher portfolio risk (motor 48.3%, fire Relative Performance To FBM KLCI
20.9%, MAT 4.9% and others 25.9%) which is skewed towards the higher
risk motor insurance with claims ratio of 66.5% in FY08.
Affin Holdings
♦ Forecasts. Unchanged pending further details.

♦ 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 fair value of
RM3.03 (post FY09 results fine-tuning) based on unchanged 11x CY10 EPS
(5x discount to sector benchmark PER of 16x to account for the lowest ROE
in the industry as well as low liquidity and small market capitalisation).
However, its share price has outperformed the market with 48.6%
appreciation since we upgraded the stock on 21 Aug 09 (vis-à-vis CI’s
Low Yee Huap, CFA
performance of 10.7%) and current potential upside is now in line with our
(603) 92802175
expected market return. Thus, we are downgrading the stock from low.yee.huap@rhb.com.my
Outperform to Market Perform.

Please read important disclosures at the end of this report.

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Table 2. Earnings Forecasts Table 3. 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 4. 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 11.16 13.12 OP 14.5 14.9 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 7.00 8.96 OP 15.9 15.3 12.5 21.7 2.0 1.7 1.8 9.9 12.1 12.8
CIMB Group 13.72 16.24 OP 25.1 17.5 14.6 18.1 2.9 2.4 2.3 11.9 15.0 16.1
AMMB 5.00 6.13 OP 15.8 13.2 11.1 13.7 1.6 1.4 1.2 11.6 11.8 12.1
EON Capital 6.99 8.07 OP 36.2 14.2 13.0 11.2 1.5 1.4 1.3 4.2 10.1 10.0
Affin Holdings 2.75 3.03 MP 13.5 10.7 9.6 8.4 0.9 0.8 0.8 6.8 8.1 8.6
Hong Leong Bank 8.54 8.48 UP 16.4 15.0 15.1 1.5 2.5 2.2 2.0 16.7 14.8 13.4
AFG 2.79 3.27 OP 16.2 17.2 12.8 21.5 1.6 1.5 1.4 16.8 8.6 9.1
RHB Capital * 5.50 NR NR 12.0 11.6 10.0 7.8 1.5 1.4 1.3 13.3 12.3 13.0
Sector Wt. Avg. ^ 16.7 14.7 12.2 2.2 1.9 1.8 13.2 13.0 13.3
Sector Wt. Avg. (Ex-Maybank) 16.3 13.9 12.1 2.2 1.9 1.8 15.5 15.0 15.2
Sector Wt. Avg. (Ex-Maybank & PBB) 17.2 13.6 11.7 1.9 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.

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.

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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 FBM 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 FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

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

Industry/Sector Ratings

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

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

Underweight = Industry expected to underperform the FBM 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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