Kenanga met up with Affin Group to get more insights on opportunities opening up for the banking group with Sarawak State Government’s 4.8% shareholding.
Sarawak has an addressable population of up to 3m concentrated between its key cities of Kuching, Sibu, Bintulu and Miri. While AFFIN has six branches collectively there, there is a need to elevate accessibility for financial services, particularly in the rural areas. To support this cause, the group is looking into expanding its branch network into the teens but with no indication on its timeline for now. This could also include a wider footprint of offsite ATM and CRM machines across the state with mobile financial centres set up in more rural areas.
As of its 3QFY23 reporting, Sarawak-based accounts comprised of RM2.8b (4%) of its total loans. The house opines that a larger presence could drive its books share here, albeit not likely to surpass its KL (22%) or Selangor (31%) portfolios. On the flipside, Kenanga notes that the group has been aggressive with its issuance in debt capital market products which may benefit from the state’s participation.
In lieu of a heightened rate environment, the group may be holding back on its mortgage growth strategies until rates are more palatable for consumers. Additionally, with certain SMEs seeing dampened asset quality, no thanks to unfavourable macros, the group may be required to review its position here. That said, broader financing prospects may come from ongoing infrastructure projects, while demand for automobiles (<RM200k) still appears supportive. To recap, the group’s FY25 targets include: (i) PBT of RM1.5b; (ii) ROE of 10%; and (iii) loans book of c.RM90b. For the immediate FY23, the group has set a PBT target of RM600m.
Post update, the house leaves its FY23F/FY24F assumptions unchanged.
Downgrade to UNDERPERFORM (from MARKET PERFORM) with an unchanged TP of RM1.90. Kenanga maintains its GGM derived PBV of 0.35x (COE: 11.5%, TG: 3.0%, ROE: 6.0%) on our FY24F BVPS of RM5.33. AFFIN’s share price saw strong appreciation with the inclusion of Sarawak State Government amongst its shareholders, spurring hopes of substantial spillovers from there. Kenanga sait it believes it could be overbought with the abovementioned discussions indicating that immediate benefits need to be more meaningful. Paired by the group’s below-industry ROE, the house views risk-reward to be unfavourably skewed. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by the house.
