Affin Bank paving for the long drive ahead

While Affin Group’s financial year 2023 (FY23) net profit of RM402.2 million came in 15 per cent below consensus fullyear estimates, analysts believe that the banking group was paving the way for the long goal.

Researchers with Kenanga Investment Bank Bhd (Kenanga Research) noted that the negative deviation in Affin Group’s FY23 net profit was attributed by deeper-thanexpected net interest margins (NIMs) compression alongside heavier personnel cost pressures.

Year on year (y-o-y), its FY23 net interest income dipped by 19 per cent from diminishing NIMs following stressed funding cost, offsetting the group’s 12 per cent loans.

“That said, non-interest income surged 77 per cent thanks to better investment gains, cushioning the decline in total income to just three per cent,” Kenanga Research said in its analysis on the banking group yesterday.

“Cost-wise, operating expenses rose by eight per cent mostly on the back of higher establishment costs which led cost-income ratio to creep to 71.6 per cent.”

On the flipside, the research house saw that provisions significantly improved to 13 basis points from more effective collections.

All in, this translated to a higher FY23 net profit of RM402.2 million, excluding discontinued AHAM operations within the group.

“Meanwhile, Affin Group unveiled the AX28+ as a longterm initiative for the group to bring pretax profit to RM1.8 billion.

“It is gathered that aside from aggressive growth strategies, the group’s new Sarawak State Government backing could possibly propel its performance by enabling more opportunities there.

“That said, no details on a discussed increase in stake were shared, pending official announcements release.”

Kenanga Research trimmed its FY24 forecast earnings for Affin Group by nine per cent mainly on softer net interest income inputs.

It maintained its underperform call on the stock with a target price of RM1.80 per share, adding that Affin’s share price saw strong appreciation with the inclusion of Sarawak State Government amongst its shareholders, spurring hopes of substantial spillovers from

“We believe it could be overbought with our abovementioned discussions indicating that immediate benefits need to be more meaningful,” it said.

“Paired by the group’s belowindustry return on equity, we view risk-reward to be unfavourably skewed.”

Aside from aggressive growth strategies, the group’s new Sarawak State Government backing could possibly propel its performance by enabling more opportunities there.