• 9M24 core PATAMI was ahead of our expectations on higher provision writebacks

• Focus remains on growing high yielding assets and low-cost CASA

• Maintain SELL with unchanged GGM-derived RM2.40 target price

Writebacks of provisions drove result beat

Affin reported 3Q24 PATAMI of RM146m (+23% QoQ, +45% YoY), bringing 9M24 PATAMI to RM375m (+3% YoY). This was ahead of our forecasts at 83% but in line with the consensus expectation of 72%. The deviation mainly stemmed from larger-than-expected writebacks of provisions (3Q24: RM184m, 9M24: RM300m; 3Q24 management overlays: RM330m vs 2Q24: RM413m). 9M24 operating income grew 8% YoY, with net interest income up 5% YoY to RM1.1bn, resulting in a 13bps NIM decline of 1.33%. Non-interest income rose 14%, driven by higher fee income and FX trading activities. However, 9M24 pre-impairment operating profit (PIOP) declined 14% YoY to RM409mn, reflecting negative JAWs as operating costs increased 18% YoY. Management revised down its PBT and ROE target to RM750m and 5% (from RM1bn and 7%) for 2024, vs our RM660m and 4.5% ROE forecasts.

3Q24 NIM faced pressure

3Q24 NII grew 9% QoQ, despite NIM contracted by 9bps to 1.31%. Non-interest income surged 62% QoQ on robust capital market activities. The cost-to-income ratio remains elevated at 74%, with personnel costs increasing by 20% QoQ and establishment costs up by 25% QoQ. PIOP was up 24% QoQ. Gross loans grew 10% YoY, with community banking loans increasing by 12%. Deposits grew 3% YoY, with CASA rising by 19% and a CASA ratio at 26.9%. Asset quality improved, with GIL declining to 1.74% from 1.89% in 2Q24. However, management remains cautious about potential risks to asset quality in the current soft economic environment despite solid recoveries. Management focuses on growing high- yielding assets, low-cost CASA, and effective balance sheet management.

Maintain SELL on lofty valuations; unchanged GGM-derived RM2.40 TP

We raise our 2024 earnings forecast by 12%, considering the higher-than-expected writeback of loan provisions. Our GGM-derived RM2.40 TP remains unchanged. Affin’s valuation appears elevated, trading near +2SD of 2025E P/BV. While we see potential in Sarawak state’s involvement as a significant shareholder and its potential to enhance Affin’s prospects, we believe the impact may not be immediate. Key upside risks include better- than-expected NIM recovery and sustainable positive JAWs.

Source: Philip Capital Research - 25 Nov 2024