Malaysia is home to many banks. And they have been consolidating for many years. Yet, many of the banks are well loved by investors, most of them trading above book value per share. Large banks such as CIMB Group Holdings Bhd (KLSE:CIMB) and Malayan Banking Berhad (KLSE:MAYBANK) trades at 1.6 times and 1.8 times book value respectively. Compared to regional banks such as DBS Group Holdings Ltd (SGX:D05) and Standard Chartered PLC (HKG:2888) which are only trading at 1.24 times and 1.0 times respectively.
However, there is one bank in particular in Malaysia, which is trading well below its book value. Why is this the case? Is it a hidden gem or a value trap? Let’s find out.
Affin Holdings Bhd M (OTCMKTS:AFNHF)
One of the smaller banks in Malaysia, Affin Group has grown throughout the years mainly through mergers and acquisition. The bank currently has a market capitalization of RM7.7 billion and is majority owned by the Malaysian Armed Forces and Boustead Holdings Berhad (KLSE:BSTEAD), a government-linked company in Malaysia. However, interestingly, its 2nd largest shareholder is Hong Kong based, The Bank of East Asia Limited (HKG:0023), with a 23.5% interests in the company. Bank of East Asia is one of the few family-owned banks left in Hong Kong and has a strong investment backer itself in the form of The Bank of new York Mellon Corporation (NYSE:BK).
With such a strong list of shareholders, Affin Holdings is only trading at about 0.8 times its price to book ratio. I believe there are a few reasons for it.
Overhang of Merger
In September 2013, Affin Holdings merged as the confirmed buyer for HwangDBS Bhd’s core investment banking and brokerage business. The deal was valued at RM1.4 billion, all cash. I believe investors are still very worried about Affin’s ability to digest a merger 18% of its current size.
Affin Holdings has not been the best example for a bank. It fell into financial difficulty in the early years of the millennium, choking up non-performing loans in the region of 25% back in 2003 to 2004. Those period had hurt investors hard and Affin has always been trading at a discount to other banks ever since.
Value In Action
Although Affin has some reputation and current merger issues, it is still quite a reasonably well-run bank. Its Return on Equity has been around 8% to 10% since 2009 and its leverage ratio has always been less than 10 times, which is quite safe for a bank.
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All views and opinions articulated in the article were expressed in Stanley Lim’s personal capacity and does not in any way represent those of his employer and other related entities. Stanley Lim does not own any shares in the companies mentioned above.
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