• Maintain SELL, new MYR2.25 TP from MYR1.60, 22% downside. Affin’s 9M24 results met Street expectations, but exceeded ours due to further net impairment write-backs. At its results briefing, management shared a cautious but positive outlook for the quarters ahead, with NIM and (negative) credit costs as earnings drivers. Despite this, at 0.64x P/BV (+0.5SD) and 12x P/E (+1SD), we still think valuations have run too far ahead of fundamentals.

• Results review. Affin’s 3Q24 net profit of MYR145.8m (+23% QoQ, +45% YoY) brought the 9M24 total to MYR374.6m – this surpassed our estimates, but came in line with Street’s. The beat mainly came from lower-thanexpected credit costs, as Affin recorded a third consecutive quarter of net impairment write-backs in 3Q. For 9M24, total operating income grew 8% YoY after a decent showing in NII (+5%) and non-II (+14%), but opex rose by a higher 18% YoY – this led to an elevated CIR of 75% (9M23: 68%). With the abovementioned net impairment write-backs, the group was able to record a 10% YoY growth in PBT. 9M24 ROE of 4.4% (9M23: 4.4%) fell short of management’s initial 7% target, which was revised down to 5%.

• On a NIM recovery path. 3Q24 NIM gained 5bps QoQ to 1.45% (YoY: +21bps) due to certain liability management initiatives, including shaving off expensive fixed deposits and pivoting to cheaper long-term borrowings, and engaging in hedging activities through FX and interest rate swaps. Management also reiterated its commitment to growing high-yield loans, eg personal finance and credit cards. The new NIM guidance of 1.4% (revised from 1.6%), however, implies some compression from the 9M24 figure of 1.46%, which we think is fair given the year-end deposit competition.

• Decent asset quality performance. Absolute GILs reduced 6% QoQ (YoY: +4%), lowering the GIL ratio by 15bps QoQ to 1.74% (3Q23: 1.84%). The bulk of the improvement came from the non-retail book, which saw several instances of repayments and write-offs, allowing Affin to write back c.MYR83m in overlays that were tagged to such accounts. The group is left with c.MYR330m in overlays, which form c.27% of total provisions.

• Other highlights. 3Q24 opex charge of MYR456m (+24% QoQ, +22% YoY) was driven by personnel (hiring for new branches/operations, provisions for collective agreement adjustments) and establishment (IT investments, compliance costs) expenses. We think such opex run rates are likely to stay, but CIR could come down via improved income generation. Elsewhere, loan growth from Sarawak has lagged the group total (6% vs 8% YTD), but depositgathering activities in the state have seen positive traction.

• We lift FY24-26F earnings by 14%, 5%, and 5% as we factor in lower provision charges, among others. Our TP is now MYR2.25, and includes an unchanged 2% ESG discount. 

Source: RHB Securities Research - 25 Nov 2024