KUALA LUMPUR (Nov 25): CGS International expects Affin Bank Bhd's (KL:AFFIN) net profit for the fourth quarter ending Dec 31, 2024 (4QFY2024) to come in lower on a quarterly basis, as it does not expect the bank to see a high write-back in loan loss provision.

In a note on Monday, the house projected a net profit of RM95.7 million for Affin Bank in 4QFY2024, representing a 34.4% quarter-on-quarter (q-o-q) decline.

"However, we forecast 4QFY2024 net profit to rise 142.2% year-on-year from a much lower base of net profit of RM39.5 million in 4QFY2023, catalysed by an expansion in net interest income," it added.

The research firm kept its 'reduce' call on Affin Bank as the counter is trading at the highest calendar year 2025 price-earnings of 13.2 times in the sector but has a weak return on equity (ROE) of 4% to 5% in FY2024-FY2026.

"Potential de-rating catalysts are elevated cost of funds and our projected weak ROE of 4% to 5% in FY2024 to FY2026.

"Upside risks could come from significant improvements in the net interest margin (NIM) and cost-to-income ratio in FY2024 to FY2025."

CGS maintained its FY2024 to FY2026 earnings per share forecasts, but raised its dividend discount model-based target price (TP) from RM2.68 to RM2.76 as it rolled over its TP to end-2025.

"We prefer Hong Leong Bank Bhd (KL:HLBANK) for exposure to Malaysian banks for much better asset quality and NIMs." the house added.

Currently, there is one 'buy' rating, five 'hold', and five 'sell' calls on the stock.

Nomura maintained its 'neutral' call on Affin Bank, citing weaker-than-expected NIMs and an elevated cost-to-income ratio for FY2024.

The house lowered its TP for Affin Bank to RM3.20 (from RM3.70), due to challenges such as a revised NIM target of 1.4%, compared with 1.6% previously, and increased operational expenses.

"While the stock price is unlikely to react negatively to the guidance cut as it was expected by investors, we think near-term earnings are likely to be below target due to NIM and operating expenditure pressures, and the market is likely to doubt the current earnings run-rate due to the one-off nature of write-backs,” the note said.

Affin Bank's third-quarter performance saw a 23% q-o-q net profit growth to RM146 million, supported by provision write-backs and higher non-interest income.

Even so, the improvement was partially offset by a 24% rise in operating expenses, attributed to personnel costs and branch expansion.

“We lower [our] FY2024/25/26 earnings [forecasts] by 19%/11%/9% on lower NIM assumptions, and higher opex partially offset by lower credit cost,” it added.

Affin Bank’s share price closed six sen or 2.4% higher at RM2.96 on Monday, valuing the group at RM7.11 billion. Year to date, the stock has gained 41.83%.