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).
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.
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. We see 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 we expect loan growth to remain robust at more than 12% yoy at end-Dec 23. This will help Affin achieve our projected qoq growth of 11.2% in its 4Q23F net profit, in our view.
In view of the weaker-than-expected NII in 9M23, we cut our FY23-25F NII by circa 6%, leading to 8-9% reductions in our projected FY23-25F net profit. However, our DDM-based target price (TP) is unchanged at RM2.26 (cost of equity of 10.4%; terminal growth rate of 4%), as we roll over our TP to end-CY24F.
Despite the weaker-than-expected 9M23 NP, we retain our 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.
Source: CGS-CIMB Research - 20 Nov 2023
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Created by sectoranalyst | Apr 29, 2024