Affin’s quarter one 2023 results met expectations. Negative credit costs managed to offset the stronger-than-expected net interest margin compression, but management outlined strategies to improve net interest margin in the coming quarters.
“At 0.4x price to book value, we think its market valuation is attractive as Affin is on a fast-paced, well managed growth trajectory. Further out, its new Sarawak-based shareholder could bring growth opportunities in new areas,” said RHB Research (RHB) in the recent Malaysia Results Review Report.
Quarter one 2023 net profit of RM149.0 million formed 24% and 27% of RHB and consensus full-year estimates. A 25 basis points quarter-on-quarter net interest margin compression led to subdued net interest income (-14%), although this was mitigated by lower overhead costs (-4%), an increased write-back of impairment allowances, and a normalised effective tax rate.
Year-on-year, operating income grew 10% on the back of stronger net interest income and non-interest income contributions. Quarter one 2023 return on average equity stood at 5.5% versus 5.1% in quarter four 2022 and 5.7% in quarter one 2022.
Net interest margin dropped by 25 basis points quarter-on-quarter on higher interest expense as deposit competition was rampant in quarter one 2023.
Management reiterated its ambition of achieving a 2.11% net interest margin in financial year 2023, banking on growth in higher-margin loan products as well as an improving current accounts savings accounts mix. New mortgage and SME loans have also been repriced upwards to help contain the net interest margin squeeze.
Gross loans rose by 14% year-on-year, driven by the bank’s consumer and enterprise banking segments. Affin kept its financial year 2023 loan growth target of 10-12%, with growth primarily coming from the aforementioned areas. Liquidity is also ample, with the launch of the bank’s mobile application in June expected to contribute positively to its current accounts savings accounts franchise.
Gross impaired loans inched up 2.5% quarter-on-quarter on higher mortgage and SME gross impaired loans – the gross impaired loans ratio stayed flat at 1.96%.
Gross credit costs of 12 basis points stayed well below the guidance of 30 basis points for financial year 2023. Loan life coverage ratio of 117% remains above the comfort level of 100-110%, with ample overlays of RM573 million.
“We lower financial year 2023-2025 estimates by 5-10% as we factor in lower net interest margin assumptions, offset by lower financial year 2023 future credit costs. Our trading price falls to RM2.30, and includes a 2% ESG premium,” said RHB.
