Value unlocking. To recap, AFFIN is looking to dispose its entire 63% -owned Affin Hwang Asset Management Bhd (AHAM) to GVC Capital Partners at a price tag of RM1.4bn (scheduled to complete in 3Q22). Overall, we are delighted with AHAM’s high disposal value, which works out to be 2.8% price to asset under management (P/AUM), a premium compared to its 2014 acquisition P/AUM of 1.8% and industry mean M&A valuation of 2.2%. Although the disposal comes at a cost of losing 20 -30% of the group PBT (with the already lower than industry mean ROE falling by another 105-155bps), the monetization of AHAM at a premium price tag will allow AFFIN to frontload ten years’ worth of its earnings. Upon the deal completion, AFFIN is poised to pocket divestment gains of RM1.0bn, enabling the group to consider a special dividend or plough back the proceeds to grow its core banking business.

Bright outlook with cheap price tag. Although KLFIN and AFFIN have corrected 5.8% and 13.4% from their peak respectively, in wake of the red-hot inflation, hawkish Fed and global recession fears, we reiterate our buy on weakness strategy. Our optimism is supported by (i) OPR hikes (two rate hikes in 2H22), (ii) better loan growth and fee income, together with (iii) lower impaired loan allowances. Also, the current 1.0x sector P/B (-1.0SD of the 10-year mean P/B) is still lower than the global financial crisis recovery phase (rallied 3SD and peaked at +2SD at 2.07x P/B), suggesting more room to re-rate.

Currently, Affin is trading at an undemanding 0.36x FY23 P/B (28% discount against a 5-year average of 0.50x) coupled with a 6.6% dividend yield. Considering that the market (including us) has not baked in the potential special dividends post-disposal of AHAM into forecasts, we reckon this re-rating catalyst will lift AFFIN's price to greater heights once materialized.

Trading near its uptrend support. Technically, AFFIN is trading near its uptrend channel support of RM1.84-1.90 with indicators showing uptick bias. In light of the higher highs pattern, a decisive breakout above RM1.97 will spur prices higher towards RM1.98-2.10-2.23 territory. Cut loss at RM1.80

Source: Hong Leong Investment Bank Research - 6 Jul 2022