PP 7767/09/2010(025354)

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

R e su l ts N o t e
1 June 2010
MARKET DATELINE

Affin Holdings Share Price

Fair Value
:
:
RM2.90
RM3.58
Getting Off On The Right Foot Recom : Trading Buy
(Upgraded)

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 11.7 3.17 0.9 - 6.4 2.2 8.1
2010f 549.5 411.0 27.5 10.5 10.5 3.24 0.9 28.8 6.4 2.2 8.6
2011f 591.0 442.1 29.6 7.6 9.8 3.31 0.9 32.9 6.4 2.2 9.0
2012f 633.2 473.6 31.7 7.1 9.1 3.39 0.9 34.0 6.4 2.2 9.5
Main Market Listing / Trustee Stock / Non-Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ 1QFY10 results above expectations ... Affin reported 1QFY10 net profit RHBRI Vs. Consensus
of RM135m (+47.8% yoy; +60.8% qoq), which accounted for 32.9% of Above
our and 31.5% of consensus full-year net profit forecasts respectively. The In Line
strong 1Q results vis-à-vis expectations was mainly due to the low Below
allowance for impairment on loans during the quarter.
Issued Capital (m shares) 1,494.4
♦ … with net profit up 47.8% yoy and 60.8% qoq. 1Q net profit jumped
Market Cap (RMm) 4,333.7
47.8% yoy on the back of improvements in most major line items. QoQ,
Daily Trading Vol (m shs) 1.6
net profit growth was mainly due to higher associates contribution and
52wk Price Range (RM) 1.59 - 3.29
lower allowance for impairment on loans (-85.6% qoq due to lower
Major Shareholders: (%)
individual impairment allowance), partly offset by weaker net interest
LTAT 35.7
income (-8.9% qoq).
Boustead Holdings 22.4
♦ Results highlights. 1Q10 loan growth stood at an impressive +4.6% qoq Bank of East Asia 20.7
(+13.7% yoy), driven by loans for HP (+4.1% qoq; +12.8% yoy),
purchase of non-residential property (+26.4% qoq; +37.5% yoy) and for FYE Dec FY10 FY11 FY12
working capital (+4.5% qoq; +26.3% yoy). This, however, was partly EPS chg (%) - - -
offset by lower NIMs. Non-interest income remained healthy, supported Var to Cons (%) (4.4) (10.1) (6.8)
mainly by sustainable transactional fee income and better trading income
while CIR inched up slightly qoq to 45.6% (4Q09: 44.1%; 1Q09: 51.5%). PE Band Chart
Impairment allowances for loans were significantly lower qoq and yoy, but
this was largely a reflection of lower individual impairment allowance and
PER = 15x
higher recoveries. PER = 12x
♦ Impact of FRS139. Following the adoption of FRS139, Affin’s gross
PER
PER
=
=
9x
6x
impaired loans ratio as at end-Mar’10 stood at 4.6%, as compared to the
gross NPL ratio of 3.7% as at end-Dec’09. LLC stood at 69.7% as at end-
1Q10 (4Q09: 81.5%; 1Q09: 68.8%) as the adoption of FRS139 led to the
restatement of opening balances for individual and collective impairment
allowances of RM261.5m and RM477.4m respectively (vs. SP and GP
Relative Performance To FBM KLCI
balances of RM358m and RM343m respectively as at end-Dec ’09).
Overall, the adoption of FRS139 has resulted in opening retained earnings
being restated downwards by RM17m or 1.8% of shareholders’ equity as at
1 Jan 2010. Core capital ratio at end-1Q10 was 11.9% (4Q09: 12.7%;
Affin Holdings
1Q09: 12.4%) following the repayment of interim dividend in Jan ’10.
♦ Forecasts. Pending a check with management regarding the sustainability
FBM KLCI
of the low impairment for loans, we have kept our forecasts unchanged.
♦ Investment case. We have raised our fair value to RM3.58 from RM3.03
after raising our target FY10 PER multiple to 13x from 11x (implies a lower
discount to the sector benchmark of around 20% from 30%). This increase
is to reflect: 1) the strong 1Q results, which suggests potential upside to
our numbers; and 2) news flow regarding a potential bid for EON Cap
(currently pending BNM’s approval). The bid, if successful, would see the
David Chong, CFA
enlarged group move ahead of HL Bank in terms of total assets.
(603) 9280 2186
Furthermore, valuations are the cheapest among our banking universe.
david.chong@rhb.com.my
Thus, we upgrade Affin to Trading Buy from Market Perform.

Please read important disclosures at the end of this report.

A comprehensive range of market research reports by award-winning economists and analysts are exclusively Page 1 of 4
available for download from www.rhbinvest.com
 1 June 2010

Table 2 : Quarterly Results

QoQ YoY
FYE Dec (RMm) 1Q09 4Q09 1Q10 (%) (%) Comments
Net Interest Income 220.0 264.3 240.8 (8.9) 9.5 Higher yoy due to +13.7% yoy loan growth, partly offset
(+ Islamic Banking) by weaker NIM. Lower qoq mainly due to contraction in
NIM, cushioned by +4.6% qoq loan growth.

Non-interest Income 61.5 89.3 88.3 (1.2) 43.5 Higher yoy mainly due to higher fee income (RM42.6m vs.
(Net of impairment 1Q09: RM32m) and higher trading income (RM19.1m vs.
losses from 1Q09: RM2.6m).
securities portfolios)
Flat qoq with higher trading income (4Q09: RM2.9m)
offset by negligible gain from disposal of foreclosed
properties (4Q09: RM18m).

Operating Income 281.5 353.6 329.1 (6.9) 16.9

Less: Overheads (144.9) (155.9) (149.9) (3.8) 3.4 Relatively stable qoq and yoy.
Pre-impairment 136.6 197.7 179.2 (9.4) 31.2
Profit

Less: Impairment (20.9) (86.2) (12.4) (85.6) (40.5) Lower yoy and qoq generally reflects lower individual
losses on loans, impairment allowance of RM43.4m (vs. SP of RM57.2m
advances and and RM121.3m for 1Q09 and 4Q09 respectively), as well
financing as higher recoveries of RM50.7m (vs. RM33.2m and
RM43.4m for 1Q09 and 4Q09 respectively).
Operating Profit 115.7 111.6 166.8 49.5 44.2

Associates 4.6 2.4 10.6 >100 >100

Pretax Profit 120.3 114.0 177.3 55.5 47.4

Less: Tax (28.7) (29.8) (42.0) 40.8 46.4

Effective Tax Rate 23.8 26.2 23.7
(%)
Net Profit 91.6 84.2 135.3 60.8 47.8
Source: Company, RHBRI

A comprehensive range of market research reports by award-winning economists and analysts are exclusively Page 2 of 4
available for download from www.rhbinvest.com
 1 June 2010

Table 3 : Ratio Analysis

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

Asset Quality (%)
Gross impaired loans/NPL Ratio 7.25 5.78 5.84 4.77 5.17 3.71 4.59
Net impaired loans/NPL Ratio 4.87 3.20 3.38 2.94 3.11 2.20 3.40
Individual allowance/impaired loans (SP / NPL) 34.55 46.09 43.57 39.49 41.15 41.60 26.91
Collective allowance/net loans (GP / Net Loans) 1.52 1.51 1.51 1.50 1.50 1.50 1.99
Loan Loss Coverage 55.0 71.6 68.8 70.4 69.6 81.5 69.7
Core Capital Ratio 11.5 11.1 12.4 11.6 13.1 12.7 11.9
RWCAR 14.4 13.9 14.7 13.8 15.4 13.8 14.0

Margins (%)
Yields On Earning Assets 4.79 4.81 4.35 4.08 4.06 4.13 3.86
Avg. Cost of Funds 2.84 2.71 2.39 1.96 1.88 1.89 1.94
Interest Spread 1.96 2.11 1.96 2.12 2.17 2.24 1.92
Net Interest Margins (ex-Islamic Inc) 2.13 2.27 2.13 2.27 2.32 2.39 2.08
Adjusted Net Interest Margins (+ Islamic Inc) 2.58 2.75 2.57 2.69 2.83 2.86 2.54

Profitability (%)
ROE 4.9 7.6 8.2 7.9 9.1 7.1 11.2
ROA 0.58 0.91 0.99 0.96 1.12 0.86 1.35
Cost / Income Ratio 54.3 59.2 51.5 49.1 46.1 44.1 45.6
Expenses / Avg. Assets 1.57 1.56 1.56 1.62 1.60 1.58 1.48
Provisions / Avg. Net Loans 1.00 (0.40) 0.41 0.72 0.75 1.57 0.22

Liquidity (%)
Loan Deposit Ratio 76.6 74.0 75.2 75.8 75.2 78.7 80.5
Net Loan Growth (qoq) 5.5 3.5 2.8 4.0 1.1 4.5 5.1
Deposit Growth (qoq) (3.7) 7.1 1.2 3.2 1.8 (0.1) 2.2
Source: Company, RHBRI

Table 4 : Gross Loan Book Breakdown

FYE Dec 1Q09 2Q09 3Q09 4Q09 1Q10 qoq (%) yoy (%)
Purchase of securities 375.4 366.5 364.2 337.3 315.3 (6.5) (16.0)
Purchase of transport vehicles 6,109.9 6,117.4 6,259.6 6,619.2 6,893.2 4.1 12.8
Purchase of residential property 3,409.4 3,437.3 3,475.2 3,518.1 3,584.7 1.9 5.1
Purchase of non-residential property 1,475.0 1,535.0 1,570.3 1,605.2 2,028.3 26.4 37.5
Purchased of fixed assets 264.6 227.6 238.8 274.7 296.2 7.8 11.9
Personal uses 753.5 752.2 766.2 756.4 775.5 2.5 2.9
Credit cards 101.3 97.2 96.9 96.5 94.8 (1.7) (6.4)
Purchase of consumer durable goods 1.7 1.5 1.4 1.4 1.2 (11.0) (27.7)
Construction 461.8 439.4 621.2 706.8 773.1 9.4 67.4
Working capital 7,207.1 7,478.5 8,374.2 8,708.2 9,101.9 4.5 26.3
Other purpose 1,174.3 1,586.1 571.6 574.5 395.5 (31.2) (66.3)
Total 21,334.1 22,038.9 22,339.7 23,198.2 24,259.7 4.6 13.7
Source: Company, RHBRI

Table 5 : NPLs By Sector

FYE Dec Gross NPLs (RMm) Gross NPL Ratio (%)
Jun 09 Sep 09 Dec 09 Mar 10 Jun 09 Sep 09 Dec 09 Mar 10
Purchase of securities 6.1 4.1 3.7 3.7 1.7 1.1 1.1 1.2
Purchase of transport vehicles 78.4 78.9 86.4 85.9 1.3 1.3 1.3 1.2
Purchase of residential property 388.4 391.7 341.9 364.6 11.3 11.3 9.7 10.2
Purchase of non-residential property 57.1 118.7 51.7 53.4 3.7 7.6 3.2 2.6
Purchased of fixed assets 1.3 5.0 4.6 4.6 0.6 2.1 1.7 1.6
Personal uses 21.7 23.6 18.9 17.3 2.9 3.1 2.5 2.2
Credit cards 1.2 1.2 0.9 0.6 1.3 1.2 0.9 0.7
Purchase of consumer durable goods 0.0 0.0 0.0 0.0 2.6 2.6 2.4 2.5
Construction 35.5 35.5 33.1 31.8 8.1 5.7 4.7 4.1
Working capital 283.4 440.1 279.5 469.7 3.8 5.3 3.2 5.2
Other purpose 177.1 55.2 39.8 84.2 11.2 9.6 6.9 21.3
Total 1,050.3 1,154.1 860.7 1,115.9 4.8 5.2 3.7 4.6
Source: Company, RHBRI

A comprehensive range of market research reports by award-winning economists and analysts are exclusively Page 3 of 4
available for download from www.rhbinvest.com
 1 June 2010

Table 6 : Earnings Forecasts Table 7 : 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-impairment RWCAR 13.25 12.78 12.42
Profit 669.7 719.6 752.2 791.5
Margins (%)
Less: Impairment Yields On Earnings Assets 4.11 4.11 4.11
losses on loans -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

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.

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.

A comprehensive range of market research reports by award-winning economists and analysts are exclusively Page 4 of 4
available for download from www.rhbinvest.com