Alliance Research lowers Affin to Neutral buts target price

KUALA LUMPUR: Alliance Research has lowered Affin Holdings from “Buy” to “Neutral” but raised the target price to RM4.78 from RM4.13.
It said on Tuesday it had rolled over its valuation from financial year 2013 to 2014 and raised the TP to RM4.78 from RM4.13.
“We maintain our 5% discount on the uncertainties arising from its potential acquisition of Hwang DBS," it said.
Alliance
Research said despite its higher revised TP, upside was limited going
forward due to recent strong share price performance.
It said Affin's
results for the first quarter ended March 31, 2013 (Q1, 2013) results,
which fell 9.1%, was due to a reduction in share of profit from its
associates from RM19.6mil to only RM500,000.
Though annualised year-to-date loan growth was only 1.2%, however it was expected to gain pace after the 13th General Election.
"The
lower profit contribution was mainly attributable to the absence of
one-off write-back of RM53.2mil by the associate due to a change in the
methodology of Unearned Premium Reserve computation," said the research
house.
Alliance Research said however the group recorded a
positive loan loss provision of RM13.1mil in Q1, 2013, boosted by 75.5%
on-year drop in individual allowance to RM3.4mil, and RM23.4mil of bad
debt recoveries.
The research house said Affin's gross loans
barely inched up by an annualised rate of 1.2% to RM34.8bil in 1Q13,
lower than the annualised industry average loan growth of 8.4%.
"We
understand the lower than expected loan growth was mainly dragged by
large corporate loan repayments and slower loan growth in Q1, 2013 with
both lenders and borrowers turning cautious in the run up to the 13th
General Election.
“With the dissipating domestic political
uncertainties post elections, we are optimistic that the group's loan
growth momentum to pick up in the upcoming quarters," it said. Alliance
Research added Affin's customer deposits were flat on-quarter at
RM42.8mil. "The stronger growth rate in gross loans relative to
customer deposits has increased its loan-to deposit ratio marginally to
81.3% ended March 2013 vs 80.9% in December 2012," it said.
The
research house noted Affin's overall asset quality remained healthy with
gross impaired loans improved from 2.3% in financial year 2012 to 2.2%
in 1Q13.
"Meanwhile, loan loss coverage edged down marginally to 70.9% in Q1, 2013 versus 71.0% in financial year 2012," it said.