Affin Bank to List the Nation's Third Biggest Asset Management Firm Soon?
Affin Bank Bhd is hardly on investors’ radar when they are looking for banking stocks. The banking group’s market capitalisation stands at RM4.8 billion -- the lowest among the listed local banks, including Malaysia Building Society Bhd, which owns MBSB Bank and has a market capitalisation of RM5.75 billion. The low valuation is due mainly to concern on its asset quality.
The banking group’s asset management operation, Affin Hwang Asset Management Bhd (Affin Hwang AM), however, could be a prized asset that has been overlooked by the investing fraternity.
Affin Hwang AM has grown by leaps and bounds over the past years with its assets under management (AUM) hitting a record high of RM47 billion. Given its sizable AUM, which is the third largest in the country, the asset manager is seen as ripe for an initial public offer (IPO) exercise.
Affin Hwang AM’s AUM is third after Public Mutual Bhd's RM78.75 billion, and Principal Asset Management Bhd's (formerly known as CIMB-Principal Asset Management Bhd) RM78.32 billion as at end-2018.
In an interview with The Edge Personal Wealth in January, Affin Hwang AM’s Managing Director Teng Chee Wai revealed that while there is no concrete plan to list yet, he is open to doing so in the future.
“We have not made any submissions to the Securities Commission Malaysia (SC) yet. But if we eventually do so and obtain the SC’s approval, the whole process is meant to do a few things. "
“The first is that it is meant to further reinforce the reward system for the management and the team to bring the company to the next level.
“Second, this is to help Affin realise the value of its investment in us over the last four to five years. From my perspective, it is good to list because then you ensure the independence of the firm. "
“We have fought hard for that and although Affin is a major shareholder of the firm, I must say that it has granted us that independence,” he was quoted as saying.
Soon after, in March, Affin Bank announced to Bursa Malaysia that Teng had exercised his stock option that was granted by the bank to buy 311,080 shares in Affin Hwang AM at the price of RM40.30 each. The 2.8% stake in the asset management firm cost him RM12.54 million cash.
Being a seasoned fund manager, Teng’s RM12.54 million investment in an unlisted entity is seen as an indication of his confidence in the company’s prospects. Besides, this could also mean that the reward system for Affin Hwang AM's management, which Teng mentioned earlier, is expected to be reinforced soon.
The stock option was granted to Teng in June 2016 as an incentive to retain the company’s key employees.
At the time, Affin told Bursa Malaysia in a filing that the stock option plan was to attract, retain, motivate and reward valuable key employees of Affin Hwang AM group. "The stock option plan provides for the key employees to be vested with options to purchase shares, which in total if all vested options are exercised will amount to 10% of the total shareholdings of Affin Hwang AM.”
It is worth noting that Affin's filing also said this: “In accordance to the stock option plan, Affin Hwang AM will use its best endeavours to undertake an IPO on Bursa in the event the pre-determined financial targets are achieved."
Following the exercise of the stock options by all key employees, including Teng, Affin Bank’s equity interest in Affin Hwang AM will be diluted to 63% from 70% before. Nikko Asset Management International Ltd currently holds the remaining 30% in Affin Hwang AM.
Now, how much is Affin Hwang worth?
ECM Libra Financial Group Bhd sold Libra Invest Bhd for RM50.07 million, valuing its asset management arm at a price-to-AUM of 0.93% of its AUM, which is about RM5.4 billion as at end-2018.
Nonetheless, Libra Invest might not be a good comparison given that Affin Hwang AM is the third largest in the country.
In January last year, CIMB Group Holdings Bhd’s disposal of a 20% stake in CIMB-Principal Asset Management Bhd to Principal International (Asia) Ltd and a 10% stake in CIMB-Principal Islamic Asset Management Sdn Bhd to Principal Finance Services Inc was at a valuation of 4.04% of their combined AUM.
CIMB Group’s annual report for FY17 shows that AUM for its asset management business amounted to RM74 billion at end-2017. On the back of the envelope calculation, the divestments would have valued CIMB Group’s asset management businesses at about RM2.99 billion.
Based on both valuations, Affin Hwang AM could be worth RM1.9 billion based on 4.04% of its RM47 billion AUM at end-2018, or RM437.1 million if it is valued at 0.93% of its entire AUM.
In terms of earnings performance, for the financial year ended Dec 31, 2018 (FY18), Affin Hwang AM posted a net profit of RM86.81 million, which was 24.31% higher than RM69.84 million in FY17, according to Companies Commission Malaysia data.
Revenue for FY18, however, dropped 11.2% to RM399.69 million, from RM450.23 million in FY17.
Should Affin Bank float the shares of Hwang Affin AM on Bursa Malaysia, it will be the first asset management firm to be listed on the local stock exchange.