1HFY22 PATAMI of RM289.6m (+55%) is within expectations. AFFIN continues to deliver promising results with strategies applied in its AIM22 initiatives, which could be propelled further by the capital injection from its AHAM disposal (RM1.0b net gain). Special dividend prospects could be a buying incentive. Maintain OP and GGM-derived PBV TP of RM2.45 (COE: 11.3%, TG: 3.0%, ROE: 7%).

1HFY22 in line. 1HFY22 reported PATAMI of RM289.6m made up 50%/54% of our full-year forecast/consensus full-year estimate. It includes the contributions from discontinuing operations (i.e. AHAM which saw its disposal completed in July 2022) of RM55.6m. No dividend was declared as expected as AFFIN typical pays once a year.

YoY, 1HFY22 NII expanded by 19% mainly thanks to an enlarged loans base (+15%), driven by higher community banking portfolio acquisitions while NIMs improved by 6bps. Meanwhile, NOII eroded by 36% as both fee-based income and treasury results were dragged by macro concerns. PPOP only grew by 3% as CIR marginally increased to 63.5% (+0.5ppt) on higher upkeep in tandem with the group’s loans base. That said, as net credit cost (20bps, - 36bps) showed significant easing on a better provisioning environment, 1HFY22 net PATAMI came in at RM289.6m (+55%). This includes contributions from AHAM’s discontinuing operations of RM55.6m (-29%) which was adversely affected by the downturn in investment sentiment.

Key briefing updates. With the completion of AHAM’s disposal in July 2022, the group is mulling over the utilisation of its RM1.54b proceeds (RM1.0b net gains) of which a portion could be funnelled into special dividends. Shareholder rewards aside, the group would likely fuel its core banking business activities which it credited its industry-leading 15% loans growth (albeit at a lower base to its peers) to more proactive sales tactics applied. Key markets will continue to be in the retail space where it is seeing the most traction (particularly in mortgages). Meanwhile, the activation of its mobile banking app in 4QFY22 should enable a wider penetration in CASA products to keep funding costs manageable. In spite of strong performances in these two quarters, the group is cognizant of near-term macro risks and kept their FY22 targets unchanged for now but we believe its 12% loans growth target could be beaten. With regards to its TRA mix, its June 2022 reading stands at 6.5% (from 6.9% in April 2022) with more than 90% of these accounts showing healthy repayment trends.

Post results, we tweak our FY22F/FY23F earnings by +1% each on model updates.

Maintain OUTPERFORM and TP of RM2.45. Our TP is based on a GGM-derived PBV of 0.48x (COE: 11.3%, TG: 3.0%, ROE: 7%) on our FY23F BVPS of RM5.07. We believe AFFIN’s monetisation of its business units (AHAM and AXA Affin by Aug 2022) 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% (excluding possible special dividends) could incentivise investors to overlook its low ROE levels which should gradually be enhanced with its growth plans. There is no adjustment to our TP based on ESG of which it is given a 3-star rating as appraised by us. AFFIN is one of our 3QCY22 sector top picks.

Risks to our call include: (i) higher-than-expected margin squeeze, (ii) lower than-expected loans growth, (iii) worse-than-expected deterioration in asset quality, (iv) further slowdown in capital market activities, (v) adverse currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 25 Aug 2022