KUCHING: TA Research, the research arm of TA Securities Holdings Bhd has upgraded Affin Holdings Bhd’s (Affin) share price to ‘hold’ from ‘sell’ due to its attractive valuations.
The research firm in a note yesterday said Affin’s share price of RM2.14 as at Feb 11 was traded at financial year 2016 (FY16) price-to-book value (PBV) of 0.6 times, a steep discount to industry peers average of 1.1 times.
TA Research believed the huge discount was justified due to the banking group’s single digit return on equity (ROE) against peers’ average of 10 to 11 per cent.
Thus, the research firm valued Affin’s stock at RM2.30 per share which translated to an implied FY16 PBV of 0.64 times.
The research firm also believed the banking group’s shares price valuation was very attractive at current levels.
Following a company’s briefing, TA Research said the banking group’s management expects better asset quality ratios on lower collective allowance (CA) charges.
With that, the research firm conservatively projected higher credit charge of 16 basis points and 15 basis points for FY16 and FY17.
TA Research observed in the event of any potential improvement towards the banking group’s internal target of 10 basis points, it would result in a four per cent upward revision to its earnings estimates.
On another note, the research firm said Affin is looking to grow its non- interest income from fees and other fee income.
It observed that those include the ability to tap on Hwang DBS’s large clientele base and access to Affin Hwang Capital’s partnership with Japanese Daiwa Securities (Daiwa) group thus potentially giving the group opportunities to ride on Daiwa’s global distribution network and undertake cross border trades.
Therefore, TA Research tweaked its FY15 net profit forecast for Affin slightly higher to RM415 million from RM405 million but lowered its earnings estimates for FY16 to RM465.7 million and FY17 to RM490.3 million from RM526.5 million and RM555.2 million previously.
At present, the research firm expects Affin’s FY15 to FY17 loans growth to be modest, broadening by between three to five per cent.
It explained that competition from the larger banking players with a more entrenched customer base could make it difficult for Affin to penetrate certain segments of the market despite commanding some three per cent of the banking industry’s market share.
Additionally, TA Research believed the increasingly difficult operating environment for the banking industry has prompted the bank to grow its loans more selectively.