1QFY22 PATAMI of RM142.7m (107%) is within expectations. The group’s overall FY22 targets should remain on track as the group solidifies its loans and deposits base. Meanwhile, the disposal of its business units should drive the expansion of its core banking business and uplift its moderate ROE levels. No dividends were declared in this quarter. Maintain OP and GGM-derived PBV TP of RM2.40.

1QFY22 within expectations. 1QFY22 reported PATAMI of RM142.7m is within expectations, making up 25%/27% of our/consensus full-year expectations. No dividend was declared as expected as AFFIN typical pays once a year.

YoY, 1QFY22 NII surged by 18% and this is mainly fuelled by a greater loans portfolio (+14%) while NIMs were comparatively stable (+2bps). However, NOII slid by 30% as fee-based income and investment performances were dampened by macro uncertainties during the period. Consequently, total income saw a flattish decline to RM528.8m (-2%). While operating costs were stable, loan provisioning improved on better staging and asset quality, with credit cost clocking in at 15bps (30 bps). Also thanks to impairment writebacks on other financial assets of RM19.8m, 1QFY22 PATAMI doubled to RM142.7m (107%).

QoQ, 1QFY22 total income fell by 8%. While NOII was weaker for the same abovementioned reason, NII declined (-7%) despite a 4% higher loans base as NIMs eroded by 27bps. This is apparently caused by a periodic redemption of subordinated debt which management believes should normalise in the subsequent quarters. This cascaded to a lower PBT and with higher effective taxes, 1QFY22 PATAMI came in 31% lower than 4QFY21’s.

Key briefing updates. Following the delivery of the group’s 1QFY22 results, management is confident that its FY22 targets are attainable, mainly to unlock a PBT of RM1.0b in BAU performance, absent disposal gains from upcoming asset management (AHAM) and insurance unit (AXA Affin) sales which should be on track to be completed by FY22. While there could be considerations to reward shareholders with special dividends, we believe shoring up working capital would be management’s priority to build a sustainable base with its AIM22 targets. Management’s 12% loans growth target seems to be intact with positive traction seen in its consumer and SME books. As of Apr 2022, the group’s TRA mix stands at 6.9% (RM3.7b) of total loans with only c.6% missing payments during the quarter. Albeit, this could be due to timing complications amidst Chinese New Year festivities; hence, management is not concerned of its overall asset quality. Despite 1Q hiccups, management opines that its NIMs should move closer to its 2.04% target with deposit acquisitions potentially via its new A1addin mobile platform.

Post results, we tweak our FY22E/FY23E earnings by -1%/+1% following model updates.

Maintain OUTPERFORM and TP of RM2.40. Our TP is based on an unchanged GGM-derived PBV of 0.47x FY23E (mean valuations). We believe AFFIN’s monetisation of its business units (AHAM and AXA Affin) could progressively refine AFFIN’s identity as a more comparable traditional bank akin to its listed peers, which may at times fetch a higher valuation for the group. At the meantime, its dividend yield prospects of 5-6% could incentivise investors to overlook its low ROE levels which should gradually enhance with its growth plans.

Source: Kenanga Research - 30 May 2022