KUCHING: Analysts believe that Affin Holdings Bhd’s (Affin) transformation, although on-going, have shown to be bearing fruit and they continue to be optimistic of the sustainability of the group’s earnings growth.
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), the management highlighted in a briefing that Affin’s Affinity transformation program have moved to stage three which is capabilities building and implementation.
MIDF Research noted that as at August 2017, Affin had completed 12 of the 25 projects initiated, including the enhancement of the group’s IT capabilities, introduction of seven new organisations which include customer experience, small and medium enterprise (SME) and Commercial, data governance and Islamic client solution.
“A commendable product of the transformation program has led to a shift in mind-set, from focusing on asset building previously to income generation.
“This also entails looking at source of funding and methodology in pricing of loans,” it said.
Indeed, the research arm believed that it had seen the product of Affin’s transformation program having an impact in the group’s performance in the past quarters.
On the the first half of financial year 2017 (1HFY17) financial performance, MIDF Research highlighted that the improved net interest margin (NIM) during the period was due to better pricing of loans.
“This stemmed from exiting unprofitable or low margin loans and, policy of implementing hurdle rate in pricing and acceptance of new loans,” it said.
Hence, MIDF Research did not see any margin significant margin compression.
The research arm liked the fact that this was the direct result of Affin’s transformation program.
It noted that the management expects that the transformation will also later lead to lower funding cost as Affin builds the group’s capabilities to secure better priced deposits.
Based on the current track record, the research arm opined that this expectation can be achieved.
As for loans, MIDF Research said that management expects them to grow faster in 2HFY17 coming from SMEs and corporate segment.
The research arm believed that this will lead to better interest income and will not be surprised if NIM improved slightly or at least maintained at current level.
MIDF Research noted that the only weakness in Affin’s 1HFY17 performance was the rise in credit cost and impairments.
“We understand that this was due to R&R of several accounts with majority in the property sector. restructuring and rescheduling (R&R) loans came in at RM296.2 million as at 1HFY17 from RM37 million as at end FY16.
“However, management expect these accounts to return to performing given that the loans were restructured to realign the borrowers’ cash flow with its financing commitments.
“Since the loans were restructured during 1HFY17, it is possible for the loans to be reclassified in the next six months,” the research arm said.
As such, MIDF Research could expect for loans impairments and credit cost to trend lower in 2HFY17.
It further noted that 100 per cent of the loans were secured, while management did not foresee a real trend of asset quality deterioration.
Meanwhile, MIDF Research noted that management expects the reorganisation of Affin’s group structure where Affin Bank Bhd will take over the listing status of Affin, to be completed by the first quarter of FY18 (1QFY18).
“Amongst the benefits are the reduction in cost and better capital adequacy,” it said.
The research arm also believed that shareholders will gain via participating at the bank level, benefitting directly from the result of the transformation program.