Affin - Strategising for a NIM Rebound; BUY

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+0.19 (9.00%)
  • Stay BUY, new MYR2.30 TP from MYR2.50, 15% upside with c.8% yield. Affin’s 1Q23 results meets expectations – negative credit costs managed to offset the stronger-than-expected NIM compression, but management outlined strategies to improve NIM in the coming quarters. At 0.4x P/BV, we think its market valuation is attractive – as Affin is on a fast-paced, well- managed growth trajectory. Further out, its new Sarawak-based shareholder could bring growth opportunities in new areas.
  • 1Q23 results in line. 1Q23 net profit of MYR149.0m (+4% YoY, +8% QoQ) formed 24% and 27% of our and consensus full-year estimates. A 25bps QoQ NIM compression led to subdued NII (-14%), although this was mitigated by lower overhead costs (-4%), an increased write-back of impairment allowances, and a normalised effective tax rate. YoY, operating income grew 10% on the back of stronger NII and non-II contributions. 1Q23 ROAE stood at 5.5%, vs 5.1% in 4Q22 and 5.7% in 1Q22.
  • NIM management strategies. NIM dropped by 25bps QoQ on higher interest expense as deposit competition was rampant in 1Q23. Management reiterated its ambition of achieving a 2.11% NIM in FY23 (+10bps YoY), banking on growth in higher-margin loan products (credit cards, personal financing and SME loans) as well as an improving CASA mix. New mortgage and SME loans have also been repriced upwards (on top of overnight policy rate-linked increments) to help contain the NIM squeeze.
  • Loans growth target kept. Gross loans rose by 14% YoY (QoQ: +3%), driven by the bank’s consumer and enterprise banking segments. Affin kept its FY23 loan growth target of 10-12%, with growth primarily coming from the aforementioned areas. Liquidity is also ample (1Q23 LDR: 91%), with the launch of the bank’s mobile application in June expected to contribute positively to its CASA franchise (1Q23 CASA: 22.3%).
  • Asset quality holding up. GILs inched up 2.5% QoQ (YoY: -7.5%) on higher mortgage and SME GILs – the GIL ratio stayed flat at 1.96%. Gross credit costs of 12bps (annualised) stayed well below the guidance of 30bps for FY23. LLC of 117% remains above the comfort level of 100-110%, with ample overlays of MYR573m (c.41% of total provisions).
  • We lower FY23-25 estimates by 5-10% as we factor in lower NIM assumptions, offset by lower FY23F credit costs. Our TP falls to MYR2.30, and includes a 2% ESG premium.
  • ESG framework update. As there is greater focus on the E pillar due to critical climate change issues, we have tweaked our ESG weightage. Henceforth, we assign a weightage of 50% to the E pillar, followed by 25% each to the S and G pillars. Further details are in our 2 May thematic research note titled Envisioning a Better Future.

Source: RHB Research - 29 May 2023

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