Affin Holdings Bhd
(July 14, RM3.07)
Maintain outperform at RM3 with fair value RM3.55: Affin announced on July 13 that after the decision of the High Court on a legal case, it has paid RM48.2 million to Maybank.
This is a long outstanding case (initiated in 2000) relating to a dispute between Maybank’s predecessor-in-title, PhileoAllied Bank, and Affin’s predecessor-in-title, BSN Commercial Bank, with regards to rights over a mutual customer’s collateral that consisted of shares. In November 2002, the High Court ruled that Maybank had priority over the shares and Affin had to deliver the shares or payment of the proceeds if the shares had been sold. On May 31, 2010, the High Court allowed Maybank’s subsequent application for monetary judgment and Affin was ordered to pay RM30 million plus interest from December 2002. Affin complied with the High Court ruling, although we also note that Affin has appealed the ruling and is currently waiting for a hearing date.
The risks include: (i) slower-than-expected loan growth; (ii) deterioration in asset quality; and (iii) changes in market conditions that may adversely affect investment portfolios.
According to Affin’s 1QFY2010 results announcement, no provision had been made with respect to this court case. Hence, a provision for the RM48.2 million (or 3.2 sen per share) could be incurred in the upcoming 2Q results. While this charge could impact our FY2010 net profit forecast by 11.5% (8.8% if the amount is tax deductible), we are keeping our earnings forecasts unchanged as we view this as a one-off charge.
Our indicative fair value of RM3.55 remains unchanged and is based on target CY2011 PER of 13 times. With better consistency in earnings over the last six quarters as well as improvement in asset quality, the Group’s prospects appear bright, in our view. We see a potential for recurring earnings to surprise on the upside ahead, which could come from stronger-than-expected loan growth (management targets FY2010 loan growth of 13% to 15% against our 8.3% assumption) and/or lower-than-expected impairment allowances on loans as asset quality improves. Thus, no change to our outperform call on the stock. — RHB Research Institute, July 14
This article appeared in The Edge Financial Daily, July 15, 2010.
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