• Maintain NEUTRAL and a GGM-derived MYR2.00 TP, 8% downside with c.6% yield. Affin’s 1Q22 results are broadly within expectations. Loans grew ahead of management’s target, at 13.8% YoY – with community and enterprise banking being key growth areas. However, the aggressive loan growth, coupled with a slowdown in CASA growth and surplus liquidity in the quarter, has led to a contraction in NIM. Despite that, management remains cautiously optimistic on achieving its FY22 target.

• 1Q22 results broadly in line. 1Q22 PATAMI surged by 107% YoY to MYR142.7m (-31% QoQ), at 27% of our and Street full-year estimate. The QoQ weakness stemmed from lower non-interest income contributions and a normalised effective tax rate of 23.9% (vs 4Q21’s 6.2%). 1Q22 annualised ROE improved to 5.69% vs FY21’s 5.5%.

• Results review. 1Q22 PIOP declined 17% QoQ (-4% YoY) on weaker topline growth. Non-II came in weaker than estimated (-30% YoY, -11% QoQ) on lower fee-based income due to the weak business sentiment amidst geopolitical tensions, while NII shrank by 6% QoQ (+18% YoY) on a 13bps QoQ decline in NIM. Key factors that contributed to the decline: A reduction in CASA ratio (1Q22: 21.55% vs 4Q21: 23.03%), surplus liquidity in preparation for the subordinated debt repayment (c.MYR1bn), and stress on the cost of deposits – to support loan growth and in anticipation of the Overnight Policy Rate hike. CIR widen 3.9ppts QoQ to 64.4%, despite flattish overheads. Provisions remained light in the quarter, with credit cost improving to 25bps

• Loan growth and asset quality. Loans grew 13.8% YoY, ahead of its FY22 12% target – driven by community and enterprise banking. The aggressive loan growth, however, affected NIMs – given the need to attract fixed deposits to support growth. Meanwhile, its GIL ratio continued to improve to 2.43% from 2.54% in FY21, while loan loss coverage improved to 74.54%. Loans under repayment assistance fell to MYR3.7bn (6.9% of total loans) as at end-April, from slightly under MYR14bn (27.2% of total loans) in end-Dec 2021. We understand that, out of the MYR3.7bn, 88% pays on time, while about 10% missed payments due to festive periods.

• FY22 target maintained. ROE is expected to improve to 7% YoY in FY22, with a MYR1bn PBT target in sight. Loans are expected to grow 12% YoY, with GIL and LLC targeted at 2.2% and 90%. Affin’s budgeted NIM of 2.04% suggests a 7bps uplift from FY21, while CIR and credit cost should trend southwards to 55% and 30bps.

• No changes to our TP and forecast as results are in line with expectations. Our new GGM-derived TP of MYR2.00 includes a 2% ESG premium for its 3.1 ESG score, valuing Affin at 0.4x P/BV against a ROE of 6%.

Source: RHB Research - 30 May 2022