HLIB Research’s forecast on Affin Bank remains unchanged since there are no material positive or negative updates 

by ANIS HAZIM / pic by BLOOMBERG

HONG Leong Investment Bank (HLIB) Research maintained its ‘Buy’ call and target price of RM2.35 for Affin Bank Bhd as it views that the bank’s risk-reward continues to skew favourably to the upside from the disposal of Affin Hwang Asset Management Bhd and potential special dividend. 

HLIB Research’s analyst Chan Jit Hoong shared that the group is optimistic and bullish as well as maintained its financial year of 2022’s (FY22) guidance. 

According to him, Affin Bank’s loan repayment assistance (RA) falls to 18% of the total loans book and is expected to decline further as more RAs under the National People’s Wellbeing and Economic Recovery Package (Pemulih) programme expire.

“Besides, the take-up rate for the Financial Management and Resilience Programme remains immaterial at 0.2% of total loans,” he said. As for oil and gas, the analyst noted that it forms less than 1% of the total loan book.

“That said, management will continue to build provisions to raise its loan loss coverage level to 90%, from 68% in FY21 and thus, retained their 30 bill payment (bp) of FY22 net credit cost guidance,” he said. 

Moreover, Affin Bank’s loans are still rising at a robust clip and will grow to 12% in FY22, given a strong showing at the community and enterprise banking segments. 

For Net Interest Margin (NIM), Affin Bank is aiming for 7bp in FY22 expansion, spurred on by more lucrative personal financing and credit card businesses along with higher current account saving account contribution. 

“Management expects two times of Overnight Policy Rate (OPR) hike in FY22 and every 25bp rise in OPR would widen its NIM by 3bp on an annualised basis. 

“That said, we gathered the current deposit-taking landscape remains competitive,” he said. 

He also noted that Affin Bank’s consumer loans book makes up 30% of the bottom 50% income group, while its 10%-20% share of its borrowers in the RA programme have been missing monthly payments, indicating Covid-19 vulnerable segment is potentially only 3% of total loans. 

“Currently, environmental, social, and corporate governance financing is less than 1% of total loans but Affin Bank is looking to raise this up to 4%/10% in FY22/ FY25,” he added. 

For its IT-related capital expenditure, the group is projected to be higher at RM316 million versus business as usual of RM150 million given. 

“This is given the rollout of Affin Delivery system, mobile banking app, and its customer relationship management (CRM 360) this year. 

“As for the outstanding corporate exercises, Affin Hwang Asset Management’s disposal and Generali SPA joint venture are on track for completion in the second half of 2022,” he further said. 

Concurrently, HLIB Research’s forecast on Affin Bank remained unchanged since there were no material positive or negative updates. 

Additionally, Chan noted that Affin Bank has been chalking in better financial metrics with the current price point being attractive at 0.37 times price-to-book near to one standard deviation.