The group recently launched its TRX Headquarters and we are convinced of AFFIN achieving its ambitious FY22 targets with some resiliency against economic headwinds. Disposal of its business units will help to fuel its key banking division’s endeavours. BUY with a TP of RM2.45 based on PBV of 0.48x. At the meantime, its dividend yield prospects of 5-6% (excluding possible special dividends) could incentivise investors to overlook its low ROE levels.

The sale of AHAM will unlock RM1.54bn in cash, likely to be sealed by the end of July 2022. This will elevate CET-1 levels to 16% (from 13.7%). The group opines that injecting said capital could stimulate the group’s banking units and add NII of RM190m (+11% to current estimates) in two years. Meanwhile, due to non-compete agreement, AFFIN will abstain from any new asset management ventures for 18 months post sale. –

The group opines that it will ensure working capital targets are sufficiently fulfilled before it considers the quantum of special dividends that may be paid. Of the RM1.54bn proceeds, if we were to estimate a payout of 25% to shareholders, this could translate to c.18.0 sen in special dividends or 9% yield while still keeping CET-1 level at c.15.8%.

The disposal of stakes in AXA Affin Life and General to the JV with MPI Generali (estimated to be completed end-Aug 2022) will provide additional RM155m cash while still being earnings accretive as an associate. That said, operational integration of this JV is expected to only materialise by 1QFY23. Post merger, the combined gross written premium is expected to stand at c.RM2.0bn. There could be a two-pronged growth enjoyed with Generali’s non-cannibalistic product offerings on top of operational synergies from the merged entity, uplifting the segment’s overall contribution to beat its historical 5% of group earnings, going forward.

The group remains confident that its 12% loans growth (industry highest) target for FY22 is attainable. Although recent OPR hikes pose headwinds to affordability, strength of the SMEs is expected to remain solid as the local economic growth remains on track.

Source: Rakuten Research - 26 Jul 2022