• Affin Bank aims to achieve the following targets in FY25F (1) ROE of 10%, (2) CIR of <53%, (3) GIL ratio of 1.5%, and (4) CASA ratio of 30%.

• The emergence of the Sarawak government as the key shareholder of Affin in Apr 2023 could catalyse the bank’s business growth in Sarawak, in our view.

• Reiterate Add given the bank’s robust loan growth and our expectation of a resumption of qoq growth in its net interest income in 4Q23F.

Key Takeaways From CGS-CIMB Regional Financial Conference

Affin Bank was represented by its President and Group CEO Datuk Wan Razly Abdullah bin Wan Ali and its Group CFO Ms Joanne Rodrigues for its session on 7 Dec 2023 during CGS-CIMB Regional Financial Conference. The key highlights were its KPIs for FY25F: (1) profit before tax (PBT) of RM1.5bn, (2) current account savings account (CASA or lowcost deposit) ratio of 30%, (3) ROE of 10%, (4) cost-to-income ratio (CIR) of less than 53%, and (4) 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 RM794.6m and ROE of 5.3% in FY25F.

Potentially Speedier Growth in Sarawak

We think 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 (for financial services), in our view.

No Immediate Plan for a Write-back in Management Overlay

Affin Bank’s total management overlay stood at RM623m at end-Sep 2023, larger than our projection of net profit of RM475.5m in FY23F and RM525.5m in FY24F. The bank stated that 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. 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%.

Reiterate Add on Affin Bank

We retain our Add call on Affin Bank given the potential re-rating catalysts from its aboveindustry loan growth and our expectation of a resumption in its net interest income growth (qoq in 4Q23F, yoy in FY24F). Downside risks to our call are the marked slowdown in its loan growth, and material deterioration in its asset quality. We retain our FY23-25F EPS forecasts and DDM-based target price of RM2.26 (cost of equity of 10.4%; terminal growth rate of 4%).

Source: CGS-CIMB Research - 11 Dec 2023