Affin Holdings Bhd - OUTPERFORM - Raising capital for PT Bank purchase?

We view AFFIN’s potential capital injection plan positively. We believe the fresh capital raised will be used to strengthen AFFIN’s capital base to support its business expansion plan, either through acquisition or organic growth.   We are reiterating our OUTPERFORM rating on AFFIN with an unchanged target price of RM4.30.

Plan to boost capital. According to media, AFFIN Banking Group’s (AFFIN) Managing Director, Datuk Zulkiflee Abbas Abdul Hamid, said the group has a plan to boost its Tier 1 and Tier 2 capital by RM500m in the first half of  this  year  to meet  the Basel 3 requirements as well as supporting its projected business growth plan.

Meanwhile, in a separate announcement, its Chairman Tan Sri Mohd Zahidi Zainuddin said the group is still interested in acquiring at least a 51% or a majority stake in Indonesia's PT Bank Ina Perdana.   AFFIN had previously put the plan on hold because of a report which stated that the central bank of Indonesia was considering to cap foreign ownership in banks to less than 50%.

Positive move. We view AFFIN’s capital injection plan positively.  We believe the potential fresh capital raised will be used to strengthen AFFIN’s capital base to support its business expansion plan, either through acquisition or organic growth.   

We believe AFFIN’s existing 10.9% CAR and 12.8% RWCR as at 31 Dec 2011 are enough to support its organic loan growth target in the range of 10-12% as well as comply with the new Basel III requirements. As such, further capital raising exercises could be meant for potential acquisitions in our view. PT Bank Ina Perdana acquisition will translate to stronger contributions for AFFIN’s top line in the coming years and  gives it a new presence in Indonesia.  

We believe that AFFIN parents companies, Lembaga Tabung Angkatan Tentera (35.3%), Boustead Holding Berhad (20.69%) and Bank of East Asia (23.5%) would not have any issues in supporting the potential capital injection plan as all three are known as financially strong institutions.

Maintain OUTPERFORM rating. We reiterate our OUTPERFORM recommendation on AFFIN.  In our view, AFFIN presents a good and underappreciated investment proposition. We see rooms for further expansion in its valuation multiples in the coming years. Our TP of RM4.30 is based on a targeted 1.0x of its FY2013 P/BV.

Source: Kenanga