Net write-back in 1Q22 LLP not sustainable
? Although Affin Bank’s 1Q22 net profit accounted for 29.5% of our full-year
forecast, we regard the results as in line in anticipation of weaker 2Q-4Q22.
? We envisage a 15-30% qoq drop in 2Q22F net profit as we project an upturn
in its LLP in 2Q22F (vs. a net write-back in 1Q22).
? Upgrade Affin from Reduce to Hold given the easing of Covid-19 credit risks
on its asset quality; CY22F P/E of 9.3x is below the sector average of 12.5x.
1Q22 within our expectation; likely weaker quarters ahead
Although Affin Bank’s 1Q22 net profit accounted for 29.5% of our full-year forecast, we
deem the 1Q22 results as in line. This is because we do not expect the net write-back in
loan loss provisioning (LLP) in 1Q22 to be sustainable and, hence, net profit in the
upcoming quarters is likely to be lower than the level in 1Q22. We regard the 1Q22 net
profit (26.5% of Bloomberg consensus estimate) to be below market expectations.
1Q22 net profit driven by write-back in LLP and higher NII
Affin’s 1Q22 net profit surged 107% yoy, driven by (1) a net write-back of RM0.2m in LLP
in 1Q22 vs. a provision of RM93.8m in 1Q21, and (2) 18.9% yoy rise in net interest income
(NII), lifted by swift loan growth of 13.8% yoy at end-Mar 22. However, 1Q22 net profit fell
31% qoq due to lower revenue (-5.6% qoq for NII and -11.1% qoq for non-interest income).
Projecting a qoq drop in 2Q22F net profit
We do not expect the net write-back in LLP in 1Q22 to be sustainable and, hence, foresee
a reversal of this to a provision in 2Q22F. This, together with higher taxation due to Cukai
Makmur, is likely to lead to a 15-30% qoq drop in 2Q22F net profit to RM100m-120m (vs.
RM117.9m in 2Q21 for yoy comparison).
Lifting FY22-24F net profit forecasts and target price
We raise our FY22-24F net profit forecasts by 3-4% as we (1) factor in another hike of
25bp in overnight policy rate (OPR) (on top of the 25bp hike we had factored in), and (2)
increase projected FY22F loan growth from 4.3% to 10%. We also increase our projected
FY22-24F DPS by circa 65% to 8-11 sen, mainly due to the rise in our assumed dividend
payout ratio from 22% to 35% (vs. 52% in FY21). For our DDM valuation, we lift our
assumed risk-free rate from 3.8% to 4% (in tandem with interest rate hike) but cut our
assumed discount to DDM value from 35% to 10% (due to the easing of Covid-19 credit
risks). All of the above lift our DDM-based target price from RM1.41 to RM2.19.
Upgrade Affin from Reduce to Hold due to easing credit risks
We see easing credit risk from Covid-19 reflected by its improved gross impaired loan ratio
and loan loss coverage. This spells lower downside earnings risks from any spike in LLP.
Meanwhile, its CY22F P/E of 9.3x is below the sector’s average of 12.5x and we deem the
FY22F dividend yield of 3.8% as attractive. Hence, we upgrade Affin from Reduce to Hold.
We prefer Hong Leong Bank for exposure to the sector.