Riding on strong NII growth
- The positive takeaway from Affin Bank’s meetings is its guidance for robust loan growth and NIM expansion, which could lead to strong FY22 NII growth.
- We see possibility of a special dividend from the AHAM divestment, which we estimate at 22 sen/share (translating into additional dividend yield of 11.2%).
- Upgrade Affin to Add from Hold given its best-in-sector loan growth in FY22F and potential special dividend (subject to BNM’s approval).
Key highlights from the meetings with Affin Bank
We hosted two meetings for Affin Bank’s management to meet up with institutional investors on 12 Jul 22. The key highlights from the meetings w ere the focus areas and targets of its AIM22 transformation programme and its guidance for FY22F.
Guiding for robust loan growth and expansion in NIM
The positive takeaway from the meetings w as the bank’s guidance for robust loan growth of 12% and a 7bp expansion in net interest margin (NIM) in 2022F, which could lead to more than 10% grow thin its FY22F net interest income (NII). We are nevertheless more conservative in our forecasts of an 8.8% jump in FY22F NII, arising from our projected FY22F loan growth of 10% and a 4bp contraction in NIM (as w e think the bank may have to sacrifice some margin to achieve swift loan growth).
Potential special dividend from AHAM divestment?
Affin expects the proposed disposal of its stake in Affin Hwang Asset Management (AHAM) (to be completed by end-Jul 22) to increase its common equity Tier-1 (CET1) capital ratio from 13.9% at end-Mar 22 to circa 16%. As this would be higher than the CET1 capital ratio of 15.1% for the industry, w e see the possibility of Affin paying out some of the AHAM divestment proceeds as a special dividend. Assuming its CET-1 capital ratio post disposal is lowered from 16% to the industry’s 15.1%, w e estimate a special dividend of 22 sen per share (additional dividend yield of 11.2%). Any special dividends by banks are subject to Bank Negara Malaysia’s (BNM) approval
Lowering EPS forecasts and target price
We low er our EPS forecasts by 2-4% for FY22-24F as w e increase our assumed share base from 2.12bn shares to 2.21bn shares to factor in the 88.3m new shares issued under the dividend reinvestment plan. This pushes dow n our DDM-based target price (cost of equity of 10.3% and terminal grow th rate of 3%) from RM2.19 to RM2.17.
Upgrade Affin from Hold to Add
Affin’s CY23F P/E fell from 7.9x on 30 May 22 (the date of our last report) to 7.3x on 19 Jul -Given the low er valuation, w e upgrade Affin from Hold to Add. Potential re-rating catalysts include its best-in-sector loan growth, strong NII expansion and potential special dividend (subject to BNM’s approval). Downside risks include material deterioration in asset quality and loan growth.
