Affin Bank counter overbought, downgraded at Kenanga

AFFIN Bank Bhd has been downgraded to ‘Underperform’ from ‘Market Perform’ at Kenanga Research after a recent price surge with connection to the interest shown by Sarawak.

In a note released today, it said Affin’s share price saw strong appreciation with the inclusion of Sarawak State Government amongst its shareholders, spurring hopes of substantial spillovers from there.

“We believe it could be overbought with our above-mentioned discussions indicating that immediate benefits need to be more meaningful. Paired by the group’s below-industry ROE, we view risk-reward to be unfavourably skewed,” it said.

The stock ended yesterday’s trade at RM2.40, above Kenanga Research’s 52-week target price of RM1.90. At 9.20am today, the counter was down 1 sen to RM2.39.

Affin bank shares have been trading between RM1.80 and RM2.20 since December 2022. Its 52-week high was RM2.46 and 52-week low of RM1.79.

Kenanga Research said it had hosted a meeting with Affin Bank to obtain updates, chiefly on opportunities opened with Sarawak State Government’s 4.8% shareholding through the Sarawak State Financial Secretary).

“We gathered that Sarawak has an addressable population of up to 3 million concentrated between its key cities of Kuching, Sibu, Bintulu and Miri. While Affin has six branches collectively there, there is a need to elevate accessibility for financial services, particularly in the rural areas.

“To support this cause, the group is looking into expanding its branch network into the teens but with no indication on its timeline for now. This could also include a wider footprint of offsite ATM and CRM machines across the state with mobile financial centres set up in more rural areas,” it said.

As of its 3QFY23 reporting, it said Sarawak-based accounts comprised RM2.8 billion (4%) of its total loans.

“We opine that a larger presence could drive its book share here, albeit not likely to surpass its Kuala Lumpur (22%) or Selangor (31%) portfolios. On the flipside, we note that the group has been aggressive with its issuance in debt capital market products which may benefit from the state’s participation,” it said.

In lieu of a heightened rate environment, the report said the group may be holding back on its mortgage growth strategies until rates are more palatable for consumers.

“Additionally, with certain SMEs seeing dampened asset quality, no thanks to unfavourable macros, the group may be required to review its position here. That said, broader financing prospects may come from ongoing infrastructure projects, while demand for automobiles (<RM200k) still appears supportive,” it said. – TMR