• Maintain SELL, new MYR1.70 TP from MYR1.90, 34% downside. Affin’s FY23 results were a miss on higher-than-expected 4Q23 opex. Regardless, management is looking ahead optimistically towards FY24F, for which it has set an ambitious target of doubling PBT YoY. Our less optimistic forecasts, however, still imply muted ROE generation of mid-4%, which appears soft against a P/BV of 0.5x.

• A challenging year. Affin’s FY23 net profit of MYR402.2m (-36% YoY at core level) was a miss, forming 88% and 84% of ours and Street’s estimates. The variance from our forecasts came from higher-than-expected opex, with CIR coming in at 72%, ahead of management’s <65% guidance (FY22: 64%). In 4Q23, we saw NIM rebound 20bps QoQ (YoY: -57bps) after the group repriced some of its loans from the mortgages, SME and corporate portfolios, and successfully gathered CASA deposits (+14% QoQ, +24% YoY). However, a catch-up in opex spend (+7% QoQ, +17% YoY) dampened the bottomline impact. All in, FY23 ROE of 3.7% came in below management’s target of 4.5% (FY22 core ROE: 3.8%), while DPS also disappointed at 5.8 sen per share, ie a lower-than-expected 34% payout (FY22: 12.3 sen DPS, 50% payout).

• Taking a breather on loans growth. While FY23 loans growth was a stellar 12% YoY, management sees domestic and external headwinds arising from uncertain macroeconomic conditions ahead. As such, its FY24 loans growth target is a deceleration to +8% YoY, with key growth segments being personal financing for households, and fast-moving consumer goods (eg grocery stores) and the tourism industry for non-households. The group sees greater macroeconomic clarity emerging in 2H24, and has a more optimistic loans growth target of c.12% for FY25.

• Corporate NPLs on the rise, but not a major concern. Affin’s NPL was up 7% QoQ and 8% YoY, mostly coming from its corporate portfolio. Management thinks corporate NPLs have not peaked yet, but are well-collateralised and have sufficient provision buffers to absorb the rise. On the other hand, the consumer and enterprise portfolios are holding up well, with NPL ratios for both segments on a declining trend. The group’s overlays (c.MYR600m as at Sep 2023) have been reallocated into specific accounts, and thus could be written back if those accounts return to performing status, or recoveries from those accounts can be made.

• Optimistic on FY24F. Management unveiled optimistic FY24F targets, most notably a PBT target of MYR1bn, implying almost 100% YoY growth. PBT drivers will be NIM rebuild, credit cost management, and non-II growth.

• Forecasts and TP. We lower our FY24-25 forecasts by 12-14% after the results miss. Our TP drops to MYR1.70 (from MYR1.90) as a result, inclusive of a 2% ESG premium.

Source: RHB Research - 1 Mar 2024