Affin – will a change of shareholders improve performance

[i4value]

The performance of Bursa banking group Affin over the past 12 year was nothing to shout about. Its performance, measured against a panel of 10 Bursa Malaysia banks, is below the sector median across key metrics such as returns, efficiency, and loan performance. However, it has improved its capital adequacy ratio.

But I would not consider Affin a value trap as it remains profitable with a margin of safety over 30% based on the asset value. However, it lacks a sufficient margin of safety under the earnings value.

The Sarawak State Government has recently acquired a substantial stake in the bank. There is hope that the state would divert its funds to Affin thereby improving its deposits and hopefully grow its loans. But if the challenge is efficiency and loan performance, I am not sure whether there would be a quantum leap in performance.

[weijian]

Malaysia has this "Skim Rumah Pertamaku" scheme, which allows first time homebuyers to buy houses at 100%-110% loan if they qualify. As the government may have some sort of co-pay insurance scheme (is in the Budget), the qualifications in terms of salary and house quantum were pretty onerous, IMO. In addition, Malaysia does not ban the practice of allowing different SPA (for loan) and actual transacted price (between buyer/seller).

I had looked at the scheme and anecdotally concluded that any bank that appears on the panel of Skim Rumah Pertamaku, would be a NO-GO as an investment for me. IIRC, Affin was on the panel.

Looking at all your metrics, Affin definitely quacks like a value trap. You left out the list of shareholders from your article, which is one of the first thing I will look at for Asian stocks. So I did a quick search and saw that LTAT and Boustead Holdings control ~49% of it. Now, Affin walks like a value trap as well. So regardless of asset value or earnings value, there is no question that Affin quacks and walks like a value trap, IMHO.

Audit exposes financial irregularities at LTAT
https://theedgemalaysia.com/article/audi...ities-ltat

P.S. Sarawak Gov's entry as an OPMI could a catalyst to unlock this "value trap" to become a "turnaround". But your article did not dwell beyond the "lowering cost of funds by injecting their capital".

[i4value]

Malaysia has this "Skim Rumah Pertamaku" scheme, which allows first time homebuyers to buy houses at 100%-110% loan if they qualify. As the government may have some sort of co-pay insurance scheme (is in the Budget), the qualifications in terms of salary and house quantum were pretty onerous, IMO. In addition, Malaysia does not ban the practice of allowing different SPA (for loan) and actual transacted price (between buyer/seller).

I had looked at the scheme and anecdotally concluded that any bank that appears on the panel of Skim Rumah Pertamaku, would be a NO-GO as an investment for me. IIRC, Affin was on the panel.

Looking at all your metrics, Affin definitely quacks like a value trap. You left out the list of shareholders from your article, which is one of the first thing I will look at for Asian stocks. So I did a quick search and saw that LTAT and Boustead Holdings control ~49% of it. Now, Affin walks like a value trap as well. So regardless of asset value or earnings value, there is no question that Affin quacks and walks like a value trap, IMHO.

Audit exposes financial irregularities at LTAT
https://theedgemalaysia.com/article/audi...ities-ltat

P.S. Sarawak Gov's entry as an OPMI could a catalyst to unlock this "value trap" to become a "turnaround". But your article did not dwell beyond the "lowering cost of funds by injecting their capital".

It is a management challenge and if the Sarawak State govt can influence this, we may see a different picture. Officially the state govt had stated that it would not "interfere" in the management. But this is not to say that they would not be looking at performance and assessing management on this basis. 

But until there are more clarity on this, there is no margin of safety based on earnings at the current price of about RM 3.00 per share. Of course the bank is trading below its book value. I would say that under Bank Negara "supervision" I think the assets are marked to market. So it is undervalued from an asset perspective. But then the market looks at earnings

[weijian]

It is a management challenge and if the Sarawak State govt can influence this, we may see a different picture. Officially the state govt had stated that it would not "interfere" in the management. But this is not to say that they would not be looking at performance and assessing management on this basis. 

But until there are more clarity on this, there is no margin of safety based on earnings at the current price of about RM 3.00 per share. Of course the bank is trading below its book value. I would say that under Bank Negara "supervision" I think the assets are marked to market. So it is undervalued from an asset perspective. But then the market looks at earnings

hi i4value,

IMHO, I think it is a structure issue, not really Mgt. You could keep changing "mgt" but if the same structure (ie. ownership) is there, nothing changes. Ditto the new Madani gov at the Federal level since late 2022 and how it may change the way the civil service from Manpower ministry to Transport ministry or Home Affairs - with these ministries the most susceptible to corruption.

The Sarawak State Gov now has a 31% stake (up from 4.8%) after purchasing it from LTAT and his affiliates. So what is the Sarawak State Gov's track record in managing their own SOEs? Besides financial, what are the other Sarawak State Gov's objectives for their investment? Do they want to earn money by been a bank? Or do they want to get their projects financed by a bank?

For most assets, value is only in play when there is reasonable probability of "trigger in change in control" - This "change control" includes asset divestments, spin-offs or privatization. Without a reasonable probability of it happening, Mr Market is perfectly rational to value any company, regardless of asset heavy/light, via earnings. To invert this, it is irrational to hope for Mr Market to think otherwise.

P.S. In the last few years, I realized that whenever I try to justify a company (whether I own it or otherwise) via asset value, it is generally a red flag because it just means that the company isn't "earning well". So nowadays, whenever I find myself uncontrollably looking at asset values without any sort of "change control", the system 2 of my brain takes over to rule those investments out unequivocally.