Affin Bank’s 9M23 net profit was below expectations (70% of our full-year forecast) due to lower-than-expected net interest income (NII).
CGSCIMB, in its Compnay Note today (Nov 20) said they expect the qoq growth in its NII to resume in 4Q23F on the back of a decline in cost of funds and expansion in loans.
CGSCIMB reiterate an Add call on the stock given the bank’s robust loan growth (one of the strongest in the sector) and potential write-back in management overlay.
9M23 net profit below expectations
Affin Bank’s 9MFY23 net profit was below expectations, accounting for 70% of our full-year forecast and 67% of the Bloomberg consensus estimate. The variance vs. our forecast primarily emanated from lower-than-expected NII due to a contraction in net interest margin (NIM).
9M23 core net profit (CNP) surged 294.2% yoy, spurred by an 81.9% yoy plunge in loan loss provisioning (LLP) and 96.5% yoy jump in non-interest income (9M22 and 3Q22 CNP excluded the one-off gain of RM1.07bn from the divestment of its stake in Affin Hwang Asset Management or AHAM).
A yoy turnaround in CNP in 3Q23 There was a yoy turnaround in profitability for Affin as the bank recorded CNP of RM100.5m in 3Q23, compared to a core net loss of RM197.6m in 3Q22.
This was mainly due to the 91.3% yoy plunge in LLP and a 139.5% yoy jump in non-interest income.
On a negative note, 3Q23 NII fell 36.4% yoy as its NIM contracted by 55bp yoy, affected by higher cost of funds arising from deposit competition.
Expecting qoq NII growth to resume in 4Q23F Affin Bank’s NII fell by double-digit rates of 13-16% qoq in 1Q-3Q23, dented by the qoq contraction of 11-25bp qoq in NIM.
CGCIMB sees the potential for qoq growth in NII to resume in 4Q23F as its cost of funds declined from 3.31% in 2Q23 to 3.26% in 3Q23 and they expect loan growth to remain robust at more than 12% yoy at end-Dec 23.
This will help Affin achieve the projected qoq growth of 11.2% in its 4Q23F net profit, in CGCIMB’s view.
Lowering FY23-25F net profit forecasts
In view of the weaker-than-expected NII in 9M23, CGSCIMB cuts their FY23-25F NII by circa 6%, leading to 8-9% reductions in our projected FY23-25F net profit.
However, their DDM-based target price (TP) is unchanged at RM2.26 (cost of equity of 10.4%; terminal growth rate of 4%), as CGSCIMB rolsl over their TP to end-CY24F.
Reiterate Add on Affin Bank
Despite the weaker-than-expected 9M23 NP, CGSCIMB retains their Add call on Affin Bank predicated on potential re-rating catalysts from the write-back in management overlay and above-industry loan growth.
In addition, its CY24F P/E of 9x and CY24F P/BV of 0.43x are lower than the sector’s 9.7x and 1x, respectively. Downside risks include a deterioration in loan growth and asset quality.
