Affin Bank Bhd’s robust loan growth and expected resumption of quarter-on-quarter (QoQ) growth in its net interest income in 4Q23F, is viewed positively by CGS-CIMB.
Additionally, it reckons the emergence of the Sarawak government as the key shareholder in Affin Bank Bhd in April 2023 could catalyse the bank’s business growth in Sarawak.
Thus, the research house maintains its ADD rating for Affin Bank.
“We (also) retain our FY23-25F EPS forecasts and DDM-based target price of RM2.26 (cost of equity of 10.4% and terminal growth rate of 4%),” it said in its Company Note today (Dec 12).
In CGS-CIMB Regional Financial Conference, Affin Bank was represented by its president and group chief executive officer Datuk Wan Razly Abdullah Wan Ali and its group chief financial officer Joanne Rodrigues for its session on Dec 7.
In the conference, the bank said its key performance index for FY25 are as follows, profit before tax (PBT) of RM1.5 billion, current account savings account (CASA) or low-cost deposit ratio of 30%, ROE of 10%, cost-to-income ratio (CIR) of less than 53%, and gross impaired loan (GIL) ratio of 1.5%.
“We think that the PBT and ROE targets are a bit stretched relative to our projected PBT of RM794.6 million and ROE of 5.3% in FY25F,” CGS-CIMB said.
As mentioned, the research house said the emergence of the Sarawak government as one of the key shareholders of Affin Bank (4.8% stake as at 29 Sep 2023) could speed up the bank’s growth in Sarawak through a closer working relationship with the Sarawak government.
“The potential areas of growth would be its lending businesses, primarily business loans, investment banking deals and ESG-related businesses especially for financial services, in our view.
CGS-CIMB noted that the bank said it has no plans to write back this management overlay in 4Q23F and 2024F as it prefers to keep this as a buffer against additional provision from any rise in GIL, in view of the uncertainties in the global economic environment.
“Affin Bank’s total management overlay stood at RM623 million at end-Sep 2023, larger than our projection of net profit of RM475.5 million in FY23F and RM525.5 million in FY24F.
“Assuming that the management overlay is partially written back in FY25F, we estimate that every 10% write-back in this would increase our FY25F net profit forecast for Affin Bank by 8.2%,” it added.
The downside risks to CGS-CIMB’s call are the marked slowdown in its loan growth, and material deterioration in its asset quality.
