“Based on Affin’s Q1 FY2024 performance, achieving targets such as a PBT of RM1 billion and ROE (return on equity) of 7% seems overly ambitious at this stage,” the research house said in a note today.
It also noted the bank’s net interest margin (NIM) and cost-to-income (CTI) ratios did not meet the management’s expectations. “However, despite these challenges, the management is determined to maintain their targets for 2024,” it added.
Affin, the Armed Forces Fund Board’s (LTAT) financial services arm, posted a PBT of RM518.3 million for FY2023, which was a 28.1% drop from RM720.5 million in FY2022.
The bank announced on Tuesday its net profit fell 26% to RM110.21 million in the first quarter ended March 31, 2024 from RM148.98 million a year earlier, on lower net interest income (NII) and other income.
TA said the management noted some uptick in the gross impaired loans (GIL) ratio for the enterprise and community banking portfolio.
“As a result, the overall GIL ratio deteriorated sequentially to 1.96% from 1.9% in Q4 FY2023, while the loan loss coverage eased to 102.3% from 116.9% due to elevated levels of impairment.
TA kept its “sell” recommendation on the stock as its shares have risen steeply and ahead of its fundamentals. It, however, raised the target price (TP) to RM2.50 from RM2.25 previously.
Its shares ended 1 sen or 0.4% lower at RM2.52, valuing the group at RM5.91 billion. Year-to-date, Affin’s share price has risen 21.2%.
Sell calls maintained
Several other research houses also have “sell” calls including RHB Research, which kept its TP at RM1.65.
It said Affin’s Q1 FY2024 results met its but missed Street estimates, while falling short of the management’s target for the full year.
“Regardless, we think Affin is overvalued at the current price, especially given its soft earnings generation,” it added.
It noted that loans growth in Q1 stood at 11% y-o-y, with community banking (i.e. personal loans and credit cards) being the key driver.
“We expect this trend to continue, as the focus on higher-yielding retail loans forms a key part of the management’s NIM strategy.”
On the positives, RHB said credit demand from SMEs has been strong, but the management is watchful of potential asset quality weakness in that segment.
“Corporate loans could surprise on the upside, as the existing pipeline looks healthy,” it added.
Meanwhile, Kenanga Research maintained its “underperform” call on Affin and kept its TP at RM1.80.
“Affin’s share price saw strong appreciation with the inclusion of Sarawak state government amongst its shareholders, spurring hopes of substantial spillovers from there.
“The group believes it is poised to be strong beneficiary of Sarawak’s economic growth trajectory, with the latter’s 2030 gross domestic product (GDP) target of RM282 billion,” it added.