• Keep BUY, with new GGM-derived MYR2.50 TP from MYR2.80, 21% upside and c.7% yield. Affin’s FY22 net earnings of MYR1.3bn met our, but beat consensus estimates. The bank announced ambitious targets for FY23F, with loans growth and ROE targets of 12% and 7% being key highlights. We like it as a dividend and valuation play, but also commend its rapid progress in improving asset quality.

• FY22 results review. NII of MYR1.7bn was up 18% YoY, driven by stellar loans growth of 15%. Non-II (-42%) was expectedly weak, and coupled with opex increase of 6%, led to negative JAWs. Credit cost recorded a 3bps uptick, though c.83% of the annual charge was pre-emptive in nature. Overall, net profit of MYR1.3bn (inclusive of Affin Hwang Asset Management divestment gains) doubled YoY and was in line with our estimate. A final dividend of 7.77 sen was declared, bringing total core DPS to 12.3 sen.

• Strong loans and CASA growth. Loans growth exceeded management’s target of 12%, primarily driven by the bank’s community banking (+23% YoY) and enterprise banking (+13% YoY) franchises. Deposits growth was also strong at 11% YoY (QoQ: +2%), led surprisingly by CASA growth of 13% YoY (QoQ: +11%). The CASA ratio improved to 0.5ppts YoY to 23.5% as a result (3Q22: 21.4%), but management remains cautious of the intense deposit competition still ongoing which has put pressure on funding cost.

• Asset quality stable. Affin’s GILs grew 7% QoQ (YoY: -10%), pushing the GIL ratio up to 1.97% (3Q22: 1.91%, 4Q21: 2.54%). The enterprise banking GIL ratio saw the largest QoQ increase of 68bps to 3.96% (4Q21: 3.68%), though we understand this was largely owing to a change in accounting treatment concerning suspended interest on legacy impaired accounts. Management guided that enterprise banking GIL ratio minus this effect would have been 3.29% – stable QoQ, and down 39bps YoY. Overall, management reiterated its commitment to keeping GIL ratio below 2% moving forward, and guided for FY23F credit cost of 30bps.

• Ambitious FY23F targets. Contrary to guidance from its peers, Affin is targeting further NIM uplift in FY23F to 2.11%, hoping to leverage on its improving CASA mix. Its loans growth target of 12% appears feasible given the relatively small base. Its CIR target of <57.5% and ROE of 7% strike us as ambitious, though management hopes these will manifest through continued momentum in the topline and well-controlled opex growth of 5%.

• We lower FY23F-24F by 5-6% as we factor in softer NIM (in line with peers) and marginally higher credit cost (matching guidance). Our TP is lowered to MYR2.50 from MYR2.80, and includes a 2% ESG premium. We are encouraged by Affin’s progress in improving its asset quality while still maintaining above-industry loan growth. At 0.4x P/BV against an ROE of c.6%, valuation appears undemanding too.

Source: RHB Research - 28 Feb 2023