Affin’s 1HFY22 core net profit of RM255m made up 46% and 47% of full-year forecasts respectively. 1HFY22 earnings strengthened by +86%yoy largely due to reduced allowances for loans and other purposes, as well as improved net interest income (NII) contributions.
This offset higher operating and taxation expenses, as well as significantly poorer non-interest income (NOII). Quarterly earnings of RM129m similarly rose by +43%yoy, due to the aforementioned reasons. On a sequential-quarter basis, non-loan provisioning writebacks and lower loan provisions kept earnings remained flattish despite 2QFY22’s improved NII and NOII showings.
Despite AIM-22 not having been completed yet, Affin has unveiled its most recent three-year plan the A25, the Group’s new multi-year strategic plan, with a focus on enhancing the customer experience, going digital, and embracing ESG initiatives. Given the lofty targets, MIDF is not expecting Affin to achieve the majority of guided financial metrics. Management acknowledges that these are stretch goals. Nevertheless, we believe that it is a step in the right direction, as it works towards resolving several issues that cause Affin to lag its peers, i.e. lack of digital touchpoints and specialisation, insufficient ESG initiatives, and weak customer satisfaction scores. MIDF believes that several of Affin’s lacklustre operational and financial metrics stem from Affin’s limited customer touchpoints, limiting their range of options and opportunities.
Key risks to earnings include failure to maintain a consistent/improving CIR, higher-than-expected credit
costs following a surge in loan growth and failure to provide alternate income drivers to compensate for the loss of AHAM’s
steady income contributions.
MIDF revised earnings for Affin’s FY23/FY24 forecasts by +2%/+6% to factor in improved NII performance on the
back of further OPR hikes, as well as raise the fees income projections which may have been overly conservative previously.
Valuation and recommendation.
Affin Bank faces multiple headwinds, most notably execution risks pertaining to its business model transformation. However, we feel that the Group also grapples with a lack of near-to-mid-term certainty, given that it seems to lack a well-drawn, comprehensive strategic plan, especially concerning funds derived from divestment activities.
Nonetheless, the outlook on Affin remains relatively positive and continues to like Affin for its special dividends, high loan
growth, serious measures undertaken to reduce dependence on volatile treasury income sources and foray into ESG
investing and customer service. While it may take some time to stand on a similar footing to its peers, it certainly seems to
be moving in the right direction.
Thus, MIDF maintains its BUY call with an upgraded TP of RM2.55.
