Affin Bank stock counter has received a maintained its SELL call from MIDF Amanah Investment Bank Bhd (MIDF Research), with a target price of RM2.35, as the bank's strong third quarter financial year of 2024 (3QFY24) results have already been priced into the stock said the analysts.
Notably, Affin reported a 3% year-on-year increase in core net profit (NP) to RM375 million for 9MFY24, which met both MIDF Research and consensus estimates. However, despite positive income growth, writebacks, and improvements in asset quality, MIDF believes the stock's valuation has outpaced its fundamentals.
The bank's strong performance in 3QFY24, with a 23% quarter-on-quarter increase in core NP to RM146 million, MIDF said was driven by robust net interest income (NII) and non-interest income (NOII), as well as writebacks that boosted net profit. Gross loans grew by 5.9% year-to-date, with the community banking segment, particularly mortgages and personal financing, leading the growth. Deposits rose by 4.4% year-to-date, with CASA growth contributing significantly, although the bank is still far from achieving its 30% CASA ratio target.
While improvements in asset quality were noted, with gross impaired loans (GIL) declining to 1.74%, the house believes Affin Bank to continue facing challenges. NIM compression due to intense loan competition negatively impacted NII, which fell 0.8% year-on-year. Furthermore, higher operating expenses (OPEX), which increased by 17.8% year-on-year, largely due to capacity building and IT-related compliance costs, have put pressure on the bank's efficiency.
MIDF has revised its FY24 profit before tax (PBT) and return on equity (ROE) targets lower, to RM750 million (from RM1,000 million) and 5% (from 7%), respectively. While writebacks contributed to the stronger performance this year, provisions are expected in the fourth quarter, with management forecasting net credit costs to rise to 5-10 basis points.
Despite the strong momentum, MIDF has not revised its earnings forecasts as the results were within expectations. The downside risks for Affin Bank include further NIM compression, a reversal in asset quality improvements, and faster-than-expected growth in OPEX.
MIDF Research's target price of RM2.35 remains unchanged, based on a 0.45x FY25F price-to-book value (P/BV), reflecting positive sentiment due to the entry of a new major shareholder. However, the research house believes that the stock has moved ahead of its fundamentals, maintaining its SELL call.
