We reiterate our OUTPERFORM rating on AFFIN Holding (“AFFIN”)
with an unchanged target price of RM4.30 (based on 1.0x FY13 P/BV, implying
11.7x PER of FY13E). The group announced that BNM has granted approval
to it to start negotiations with DRB-Hicom for the acquisition of an equity interest in Bank Muamalat Malaysia.
We continue to believe AFFIN presents an under-appreciated investment
proposition. We see room for further expansion in its valuation multiple with
this M&A news.
Announcement. The group announced that Bank Negara Malaysia
(“BNM”) has via its letter dated 15 August 2012 granted approval to Affin Holdings
Berhad (“AFFIN”) to commence negotiations for the acquisition of an equity
interest in Bank Muamalat Malaysia Berhad (“BMMB”), a 70% owned subsidiary of
DRB-HICOM. The potential disposal of interest in BMMB is in line with the
condition imposed by BNM that following the completion of the acquisition of a
70% equity interest in BMMB by DRB-HICOM on 22 October 2008, DRB-HICOM was
required to reduce its equity interest
in BMMB to 40%.
AFFIN will be required to obtain the prior approval of the
Minister of Finance, with the recommendation of BNM, pursuant to the Islamic
Banking Act 1983 before entering into any agreement to effect the above
disposal.
Our views and
acquisition rationale. We believe
AFFIN has identified Islamic Banking as a growth area in which it wants to
build up its existing position in the medium to long term. In our opinion, this
is a good move and probably a natural progression given that the acquisition of
BMMB will be the key to the group to become a bigger player in Islamic Banking.
This could be a synergistic acquisition.
The acquisition of BMMB, if successful, is expected to allow AFFIN to
add BMMB’s 58 branches into its existing branches networks and enable AFFIN tap
into BMMB’s existing business collaboration
with DRB-Hicom, in particularly with Pos Malaysia and Proton.
Assuming a 100% stake acquisition in BMMB is worth as much
as RM2.0b with a P/BV valuation of 1.4x, which is in line with recent
commercial and investment banks merger multiples, the acquisition could lead to
a marginal earning enhancement as the ROI of 10.4% is above AFFIN’s existing
ROE of 9% (assuming a 30% equity financing and 70% debt financing at a financing
rate of 4.5%).
Business overview. BMMB is principally engaged in all aspects of
Islamic banking business and related financial services in accordance with
Shariah principles. The bank has a
network of 58 branches all over the country with strategically located
Automated Teller Machines (ATMs). Its collaboration with DRB-Hicom Group, in
particular, with Pos Malaysia, has brought added strength and stability to the
institution.
Financial review. BMMB registered a PBT of RM124.1m for the
year ended March 2012, lower by 39% YoY, despite recording a moderate growth of
6% in total distributable income. The
decline in profit was partly attributed to the higher income attributable to
depositors by RM64m as a result of the increase in its total customer deposits
by 12%. Being a relevant Islamic banking player, BMMB has maintained its core
business well and has expanded its financing base from RM7.1b (March 2011) to
RM9.0b (March 2012). Total assets of the group grew 12% in the twelve-month period
to RM20.5b (from RM18.3b in the previous year) with total shareholders' fund of
RM1.43b.
Source: Kenanga
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