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Affin Bank Berhad Stronger 1HFY25 Results
TP: RM3.03 (+26.3%)
Last Traded: RM2.40
BUY (ESG: )
Li Hsia Wong
Tel: +603-2167 9610
liwong@ta.com.my
www.taonline.com.my
Review
- Affin Bank reported an encouraging set of results with higher operating income driving both YoY and QoQ net profit. IHFY25’s net profit expanded by 17% YoY to RM267.6mn from RM228.8mn a year ago, while on a sequential basis, it rose by 15.6%. YTD ROE climbed to 4.52% vs 4.07% in IHFY24.
- Net interest income (NII) accelerated by 3.3% QoQ and 8.5% YoY. Compared to last year, growth was supported by a healthy 7.3% expansion in loans and a wider Net Interest Margin (NIM), which broadened by 8 bps YoY and I bp QoQ to 1.48%.
- By segment, loan growth was led by increases in Enterprise Banking (+15.4% YoY) and Community Banking (+10.6% YoY). Growth in Community Banking was underpinned by by Personal Financing (+23.8% YoY), Mortgage (+7.1% YoY) and Hire Purchase (+5.2% YoY). Demand for Amanah Saham Funds also grew at a robust 61.5% YoY. The Corporate Banking segment, however, saw loans contract by 3.3% YoY.
- Elsewhere, total deposits from customers strengthened by 9.8% YoY. Fixed Deposits (FDs), NIDs, MMD & CMD jumped by 6.4% YoY as Affin saw a flight to FDs. Meanwhile, total CASA remained healthy, although growth softened to 19.6% vs 36.2% YoY in IQFY25. As a result, the CASA ratio slipped to 28.2% vs 32.2% in the previous quarter (FY24: 30.4%). The increase in CASA was led by Corporate Banking (+53.4% YoY), followed by Enterprise Banking (+15.0% YoY).
- Non-NII expanded by 14.3% YoY, reversing the decline in IQ, to RM324.58mn vs RM284.2mn in IHFY24. While fee and commission income remained soft, declining by 18.4% YoY, Affin reported higher net gains from financial instruments (+38.0% YoY) and forex and other income (+67.6% YoY). This helped cushion the decline in fee income. Meanwhile, the overall fee income fell due to lower fees and commission (-32.0% YoY), contributions from Stockbroking (-17.6% YoY), and Wealth Management (-2.2% YoY). Advisory Fees (+24.7% YoY), however, improved.
- Operating expenses expanded by 10.8% QoQ and 7.0% YoY. Yearly, Personnel costs and Establishment Expenses rose by 5.4% and 13.1% YoY. General and Administrative Expenses also climbed by 13.1% YoY. Meanwhile, Promotion and Marketing-Related Expenses declined by 19.9% YoY. On the back of positive JAWs, the cost-to-income ratio improved to 68.9% in IHFY25 vs. 74.7% in IHFY24.
- Allowance for impairment losses rose to RM49.5mn vs a net writeback in allowances amounting to RM30.7mn in IHFY24. The gross credit cost normalised in IH to 21 bps. The gross impaired loans ratio (GIL) remained stable at 1.83% from 1.84% in IQFY25. QoQ, the improvement in the GIL ratio was due to better Community (-1 bps) and Enterprise Banking (-28 bps) portfolios. Management noted that the Mortgage GIL has improved marginally after coming under some pressure in the previous quarter. Meanwhile, the GIL ratio in Corporate Banking deteriorated QoQ to 3.18% from 3.06%. The loan loss coverage slipped to 80.4% from 83.7% in 4QFY24.
- Elsewhere, the group’s CETI and Total Capital Ratio rose YoY to 13.4% and 17.2%, respectively.
Impact
-
No change to our earnings estimates.
Outlook
- Affin Bank posted a commendable IH FY25 performance, though results remain behind management’s full-year targets. In the briefing, management signalled that updated guidance might come with a bias towards the downside. We anticipate potential adjustments to the loan growth target from 12% previously, aligning more closely with our forecast of 8%.
- Nevertheless, management noted that the bank’s loan pipeline stood at a healthy RM13bn in the IH, with management emphasising that while certain deals have been deferred amid market volatility, the underlying demand trends remain intact. Enterprise Banking has emerged as a key growth driver, recording a double-digit YoY expansion in loans. This momentum is expected to support NIM improvements in the coming quarters, aided by strategic cross-sell opportunities from the sizeable pipeline.
- Other operational targets appear broadly on track, with NIM poised to achieve the 10 bps uplift to 1.55% guided for FY25. Affin delivered an 8 bps improvement in IH, though we expect a marginal pullback in 3Q following the recent OPR cut and a spike in higher-cost fixed deposits, which we believe is likely due to a deposit migration from Community Banking.
- Despite that, CASA growth remains healthy, underpinned by strong inflows from corporate and enterprise banking, particularly through payroll-linked solutions. We believe the recent launch of AffinAlways X will remain a key lever for revitalising retail CASA momentum. Its rapid adoption since launch provides the bank with a high-engagement digital channel to deepen customer relationships and cross-sell products. We see scope for CASA franchise recovery over the medium term, helping to cushion funding cost pressures.
- Asset quality remains broadly stable, though we see room for management to lift loan loss coverage closer to 100% over time. We also anticipate a revision to the current gross credit cost guidance of 12 bps. Management noted a slight uptick in Stage 2 loans this quarter, driven mainly by stock market volatility, whereas earlier Stage 2 pressures in mortgages have since stabilised.
- In other development, Affin’s debut USD300mn Senior Unsecured Notes issuance was met with strong demand, oversubscribed 3.5x, underscoring robust investor confidence in the bank’s credit profile. Management sees this as a key enabler to tap more cost-efficient USD funding and to pursue selective cross-border financing opportunities in line with the AX28 growth strategy.
Valuation
- We maintain our TP at RM3.03. Our valuation is based on an implied PBV of c. 0.7x based on the Gordon Growth Model. We maintain our BUY recommendation on the stock.
| Bloomberg Code | ABANK MK |
| Stock Code | 5185 |
| Listing | Main Market |
| Share Cap (mn) | 2533.8 |
| Market Cap (RMmn) | 6,081.2 |
| 52-wk Hi/Lo (RM) | 3.249/2.207 |
| 12-mth Avg Daily Vol (‘000 shrs) | 1,757.6 |
| Estimated Free Float (%) | 22.9 |
| Beta | 0.9 |
| SG ASSETFIN | 26.4 |
| BEA | 23.9 |
| LTAT | 22.0 |
| FY25 | FY26 | |
|---|---|---|
| Forecast Revision (%) | ||
| Net profit (RMmn) | 534.2 | 577.5 |
| Consensus | 570.0 | 666.7 |
| TA’s / Consensus (%) | 93.7 | 86.6 |
| Previous Rating | Buy (maintained) | |
| Consensus TP (RM) | 2.74 | |
| FY25 | FY26 | |
|---|---|---|
| ROE (%) | 4.7 | 5.3 |
| ROA (%) | 0.5 | 0.5 |
| CTI Ratio (%) | 71.6 | 69.5 |
| GIL Ratio (%) | 1.7 | 1.7 |
| BV/ Share (RM) | 4.5 | 4.3 |
| Price/ BV (x) | 0.5 | 0.6 |
| % of FY | ||
|---|---|---|
| vs. TA | 50.0 | Within |
| vs. Consensus | 47.0 | Within |
| Price Change | ABANK | FBM KLCI |
|---|---|---|
| 1 mth | (9.4) | 3.3 |
| 3 mth | (10.1) | 0.2 |
| 6 mth | (8.2) | (1.0) |
| 12 mth | (18.5) | (2.3) |
Source: Bloomberg
Table 1: Earnings Summary (RMmn)
| FYE Dec | 2023 | 2024 | 2025F | 2026F | 2027F |
|---|---|---|---|---|---|
| Net interest income | 782.9 | 826.4 | 967.9 | 1019.3 | 1080.2 |
| Non-interest income | 607.3 | 652.2 | 727.6 | 811.8 | 905.8 |
| Islamic Banking | 595.6 | 691.1 | 774.1 | 867.0 | 971.0 |
| Total operating income | 1985.8 | 2169.7 | 2469.6 | 2698.1 | 2957.0 |
| Pre-provisioning profit | 564.6 | 501.6 | 701.4 | 823.8 | 970.3 |
| Pretax profit | 522.9 | 707.7 | 703.0 | 759.9 | 830.9 |
| Core net profit | 402.2 | 509.7 | 534.2 | 577.5 | 631.5 |
| Reported net profit | 402.2 | 509.7 | 534.2 | 577.5 | 631.5 |
| EPS (sen) | 15.9 | 20.1 | 21.1 | 22.8 | 24.9 |
| EPS growth (%) | (36.2) | 26.7 | 4.8 | 8.1 | 9.3 |
| Gross div (sen) | 8.0 | n.a. | 8.0 | 8.0 | 8.0 |
| Div yield (%) | 3.3 | n.a. | 3.3 | 3.3 | 3.3 |
Table 2: 2QFY25 Results Analysis (RMmn)
| FYE 31 Dec | 2QFY24 | 1QFY25 | 2QFY25 | QoQ | YoY | YTD FY24 | YTD FY25 | YoY |
|---|---|---|---|---|---|---|---|---|
| Net interest income | 192.4 | 206.0 | 212.8 | 3.3 | 10.6 | 386.0 | 418.8 | 8.5 |
| Income from Islamic Banking business | 160.8 | 197.8 | 218.9 | 10.7 | 36.1 | 329.1 | 416.6 | 26.6 |
| Non-interest income | 141.6 | 140.1 | 184.7 | 31.8 | 30.4 | 284.1 | 324.8 | 14.3 |
| Total income | 494.8 | 543.9 | 616.3 | 13.3 | 24.6 | 999.3 | 1,160.2 | 16.1 |
| Operating expenses | (367.8) | (379.1) | (420.1) | 10.8 | 14.2 | (746.7) | (799.1) | 7.0 |
| Operating profit | 127.0 | 164.9 | 196.2 | 19.0 | 54.5 | 252.6 | 361.1 | 43.0 |
| PBT | 150.8 | 178.2 | 179.8 | 0.9 | 19.2 | 295.7 | 358.0 | 21.0 |
| Reported profit after tax | 118.6 | 124.1 | 143.5 | 15.6 | 21.0 | 228.8 | 267.6 | 17.0 |
| EPS (sen) | 4.7 | 4.9 | 5.7 | 15.6 | 21.0 | 9.0 | 10.6 | 17.0 |
