Affin Bank - Missed estimates

Date: 
2021-03-08
Firm: 
HLG
Stock: 
Price Target: 
1.85
Price Call: 
HOLD
Last Price: 
2.16
Upside/Downside: 
-0.31 (14.35%)

Affin’s 4Q20 posted core net loss of RM10m due to higher loan loss provision as GIL ratio deteriorated. However, loans growth improved and sequential NIM expanded. Overall, results missed estimates due to higher-than-expected bad loan allowances. Thus, we cut FY21-22 profit forecast by 1-4%. While trading at an attractive price point (P/B at -1SD), in our view, Affin is a riskier investment proposition, given less resilient asset quality. Also, it stays as one of the least profitable local listed bank. Maintain HOLD but with a lower GGM-TP of RM1.85 (from RM1.90), based on 0.37x FY21 P/B.

Missed expectations. Excluding modification gains, Affin posted 4Q20 core net loss of RM10m (vs 3Q20: +RM48.7m; 4Q19: +RM122m), bringing FY20 sum to RM290m (-41% YoY). This missed estimates, forming only 76-79% of our and consensus full year forecasts; key variance came from higher-than-expected bad loans provision.

Dividend. A final DPS of 3.5sen (FY19: 7.0sen) was proposed. Ex-date TBD later.

QoQ. Posted a core net loss of RM10m vs a profit of RM49m in 3Q20 on the back of higher loan loss provision (doubled). Also, total income fell 11% given weaker trading income (-81%) but was offset by a 26% drop in opex (personnel cost declined 37%). Besides, net interest margin (NIM) widened by 17bp.

YoY. Similarly, the spike in bad loan allowances (+6-fold) caused Affin to go into the red. That said, positive Jaws provided some cushioning as total income expanded by quicker 6ppt vs opex.

YTD. Core bottom-line fell 41% due to larger provision for impaired loans (+11-fold). However, positive Jaws from NOII (+65%) mitigated some of the impact.

Other key trends. Both loans and deposits growth improved to +0.7% (3Q20: -1.5%) and -2.4% YoY (3Q20: -13%) respectively; loan-to-deposits ratio remained at 93%. As for asset quality, gross impaired loans (GIL) ratio deteriorated 66bp QoQ because of the auto and construction segments.

Outlook. We see NIM pressure returning (but will be short-lived) given budding 25bp OPR cut in 1H21. On the other hand, loans growth is anticipated to stay tepid for now as Covid-19 related headwinds drag near-term showing but should gather more pace 6-12 months down the road. Even though GIL ratio has creeped upwards, we are not overly concerned as Affin already made heavy pre-emptive provisioning in FY20 and we reckon credit risk has been adequately priced in by the market, looking at the high NCC assumption applied for FY21 by both us and consensus (above the normalized run-rate but below FY20’s level). Moreover, we believe the Government and BNM will remain supportive in helping troubled borrowers, limiting a significant sag in GIL ratio.

Forecast. With the weaker-than-expected 4Q20 results, we reduce FY21-22 profit by 1-4% to factor in high-than-expected bad loans provision.

Retain HOLD call but with lower GGM-TP of RM1.85 (from RM1.90), following our profit cut and based on 0.37x FY21 P/B (from 0.38x) with assumptions of 4.2% ROE (from 4.3%), 6.2% COE, and 3.0% LTG. This is below its 5-year average of 0.46x and the sector’s 0.90x. The discounts are justifiable given its lower ROE generation, which is 1ppt/4ppt beneath its 5-year/industry mean. While trading at an attractive price point (P/B at -1SD), in our view, Affin is a riskier investment proposition, given less resilient asset quality. Also, it remains as one of the least profitable local listed bank.

Source: Hong Leong Investment Bank Research - 8 Mar 2021

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