WHILE Affin Holdings Bhd could pocket a gain of disposal of RM1.3 bil from the divestment exercise of its 63% stake in its asset management arm Affin Hwang Asset Management (AHAM), this could result in a relatively sharp drop in group return of equity (ROE) from 4.5% to 3.0%.
This, according to UOB Kay Hian Research, is due to AHAM’s contribution to group earnings which is relatively prominent, averaging at 25%.
On Friday (Jan 28), Affin announced that it will be selling AHAM to CVC Capital Partners for RM1.42 bil cash.
“That said, the RM1.4 bil proceeds (Affin’s 63% stake) are expected to be used to redeem its RM1 bil MTNs (medium term note) (COF [cost of funds] of 5.45%), translating to a cost saving of RM55 mil which will help to partially mitigate the sharp ROE dilution to 0.7 ppts (percentage points),” projected analyst Keith Wee in a company update.
“The remaining RM400 mil proceeds can potentially be paid out as special dividends (19 sen/share).”
As it is still uncertain if Affin will distribute any special dividend from proceeds of the sale of its stake in AHAM, UOB Kay Hian Research expects the market to price in a lower end of its assessed target price range post disposal of AHAM at RM1.68-RM1.87 in the near term.
“Affin’s share price has appreciated by 15% over the past three months, implying that the market has factored in the transaction,” suggested the research house. “Even if there is a potential special dividend, we note that upside is limited from current share price.”
Given the balanced risk reward profile, UOB Kay Hian Research reiterated its “hold” recommendation on Affin with an unchanged target price of RM1.80.
Despite the apparent risks, MIDF Research note that it is positive on the divestment’s effects on the Affin’s balance sheet.
“In our opinion, the focus on higher-potential enterprise and community loan portfolios are a step in the right direction as the group seeks to remedy its asset quality and lower-than-average ROE issues,” opined the research house.
“The timeframe in which it is able to rectify this, however, is less certain, though we expect more apparent changes by 2023.”
All-in-all, MIDF Research also retained its “neutral” stance on Affin with a higher target price of RM1.87 (from RM1.57 previously) based on a pegging FY2022F BVPS (book value per share) to 0.4 times PBV (price-to-book value).
“We increase our PBV from 0.33 times to consider a higher ROE outlook as well as a much more favourable risk-reward profile,” added the research house.
At 11.33am, Affin was down 2 sen or 1.12% to RM1.77 with 1.76 million shares traded, thus valuing the company at RM3.76 bil. – Jan 31, 2022
