Affin returned to the black in 4Q22, posting net profit of RM139m given positive Jaws and loan loss provision writeback. Also, NIM stayed flat sequentially and loans growth held steady. However, GIL ratio climbed upwards. Overall, results were within estimates and thus, forecasts were unchanged. We find Affin’s risk reward profile to be balance as there are no new positive catalysts to spur share price higher. Retain HOLD and GGM-TP of RM2.20, based on 0.41x FY23 P/B.

Within estimates. Affin posted profit of RM139m in 4Q22 (vs a core loss of RM94m, ex-goodwill impairment, divestment gains and related-opex in 3Q22; -23% YoY), that brought FY22 sum to RM334m (-23% YoY). This was within expectations, making up 97%-102% of our and consensus full-year forecasts.

Dividend. Proposed final DPS of 7.77sen (4Q21: 12.5sen), bringing full-year DPS to 30.39sen (FY21: 12.5sen). Ex-date TBD later.

QoQ. Affin returned to the black, posting profit of RM139m due to positive Jaws (total income grew 6% while opex fell 6%) and loan loss provision writeback. At the top, we saw non-interest income (NOII) increased 48% given stronger fees, trading and forex gains. That said, net interest margin (NIM) was sequentially flat.

YoY. Although Affin registered positive Jaws (total income growth outstripped opex by 4ppt), earnings decreased 23% due to the absence large deferred tax income coupled with the negative impact of prosperity tax this quarter.

YTD. Bottom-line decreased 23% given negative Jaws (opex outgrew total income by 4ppt) and higher loan loss provisions (+21%).

Other key trends. Both loans and deposits growth stayed firm at +15.4% YoY (3Q22: +16.6%) and +10.5% YoY (3Q22: +11.3%) respectively. On a sequential basis, loan to-deposit ratio (LDR) nudged up 2ppt sequentially to 91%. As for asset quality, gross impaired loans (GIL) ratio increased 6bp QoQ mainly due to the uptick at the working capital and landed property segments.

Outlook. We expect sequential NIM to shrink given: (i) repricing of matured deposits, (ii) CASA being utilized and substituted to FD, along with (iii) still stiff price competition for FD. Furthermore, loans growth is seen to moderate due to a softer domestic macro environment. Besides, GIL ratio is likely to climb but we are not overly worried as we believe Affin is better equipped vs prior slumps; the large pre-emptive allowances built up in FY20-21 and 3Q22 to battle Covid-19 pandemic woes and latency in credit loss from OPR hikes, act as robust buffer to cushion for any asset quality weakness in the short-term.

Forecast. Unchanged since 4Q22 results were in line.

Retain HOLD and GGM-TP of RM2.20, based on 0.41x FY23 P/B with assumptions of 4.7% ROE, 7.2% COE, and 3.0% LTG. This is in line to its 5-year average of 0.41x but beneath the sector’s 0.85x; the discount is fair given its weak ROE output, which is 5ppt below industry mean. In our opinion, Affin’s risk-reward profile is still balanced, seeing that share price has performed strongly last year and there are no new positive catalysts to drive it higher. We note tailwinds which were supposed to be enjoyed by banks (like big NIM expansion, strong credit growth) over 2022-23 have instead been frontloaded to last year, turning next 10 months to be less exciting.

Source: Hong Leong Investment Bank Research - 28 Feb 2023