Kenanga maintains its TP of RM2.45 for Affin (COE: 11.3%, TG: 3.0%, ROE: 7%) and OP call. In a post-meeting with the group at its recently launched TRX Headquarters, the research house is convinced of AFFIN achieving its ambitious FY22 targets with some resiliency against economic headwinds.
Disposal of its business units will help to fuel its key banking division’s endeavours. AFFIN is one of Kenanga’s 3QCY22 sector top picks.
The sale of the Affin Hwang will unlock RM1.54b in cash, likely to be sealed by the end of July. This will elevate CET-1 levels to 16% (from 13.7%). The group opines that injecting said capital could stimulate the group’s banking units and add NII of RM190m (+11% to current estimates) in two years. Meanwhile, due to non-compete agreement, AFFIN will abstain from any new asset management ventures for 18 months post sale.
- The group opines that it will ensure working capital targets are sufficiently fulfilled before it considers the quantum of special dividends that may be paid. Of the RM1.54b proceeds, if we were to estimate a payout of 25% to shareholders, this could translate to c.18.0 sen in special dividends or 9% yield while still keeping CET-1 level at c.15.8%. AXA to also close in 3QFY22. The disposal of stakes in AXA Affin Life and General to the JV with MPI Generali (estimated to be completed end-Aug 2022) will provide additional RM155m cash while still being earnings accretive as an associate. That said, operational integration of this JV is expected to only materialise by 1QFY23.
- Post merger, the combined gross written premium is expected to stand at c.RM2.0b, behind market leader Allianz’s RM2.35b book. There could be a two-pronged growth enjoyed with Generali’s non-cannibalistic product offerings on top of operational synergies from the merged entity, uplifting the segment’s overall contribution to beat its historical 5% of group earnings, going forward.
- Unhindered by recent macro developments. The group remains confident that its 12% loan growth (industry highest) target for FY22 is attainable. Although recent OPR hikes pose headwinds to affordability, the strength of the SMEs is expected to remain solid as the local economic growth remains on track. This will be balanced by the launch of its mobile banking app in 4QFY22 to keep CASA and funding costs sticky. Meanwhile, NOII will be cushioned by encouraging reception of its wealth products amidst sluggish investment and trading performance. Post update, FY22E/FY23E assumptions is unchanged.
- Kenanga TP is based on a GGM-derived PBV of 0.48x (COE: 11.3%, TG: 3.0%, ROE: 7%) on our FY23EBVPS of RM5.07. It believes AFFIN’s monetisation of its business units (AHAM and AXA Affin) could progressively refine AFFIN’s identity as a more comparable traditional bank akin to its listed peers, which may at times fetch a higher valuation for the group. At the meantime, its dividend yield prospects of 5-6% (excluding possible special dividends) could incentivise investors to overlook its low ROE levels which should gradually be enhanced with its growth plans.
- Risks to call include: (i) higher-than-expected margin squeeze, (ii) lower-than-expected loan growth, (iii) worse-than-expected deterioration in asset quality, (iv) slowdown in capital market activities, (v) unfavourable currency fluctuations, and (vi) changes to OPR.