PETALING JAYA: Affin Bank Bhd may see further upside in earnings growth following its better-than-expected performance for the third quarter (Q3) ended Sept 30, 2021.
Citing potentially stronger loan growth and improvement in fee income, several brokerages have raised their earnings forecast for the second-smallest banking group in Malaysia.
Kenanga Research raised its earnings forecast by 29% for the financial year ending Dec 31, 2021 (FY21) and 17% for FY22.
The brokerage noted it had raised its loan growth assumptions for Affin from 6% to 9% for FY21 and from 2% to 4% for FY22.
Given the expected improvement, Kenanga upgraded its call on Affin to “market perform” from “underperform”, with a higher target price of RM1.55, compared with RM1.40 previously.
“The solid results could also be a translation of management’s FY22 targets on improved income streams and optimised operating controls,” Kenanga commented on Affin’s year-to-date (y-t-d) performance.
“There may still be some reservations on the group’s return on equity which could improve with consistent earnings delivery,” it wrote in its report yesterday.
Affin’s Q3’21 net profit jumped almost three-fold to RM133.2mil from RM48.7mil in Q3’20 on improved business performance and lower operating expenses and allowance for impairment losses.
Y-t-d, its net profit rose 33.5% to RM320.1mil from RM239.7mil, while revenue increased to RM1.67bil from RM1.64bil in the nine months to September 2020.
TA Research raised its target price for Affin to RM2.10 from RM2, underpinned by an upward revision to its earnings estimates.
Following the bank’s encouraging performance, the brokerage raised its net profit forecast for Affin to RM432mil from RM355mil for FY21; RM425mil from RM423mil for FY22; and RM459mil from RM458mil for FY23.
It reiterated its “buy” call on the bank, pointing out that its recommendation was supported by a view that Affin is a potential merger-and-acquisition play.
“Affin’s growth will be underpinned by the ongoing execution of the ‘Metamorphosis Plan’, where we expect rapid digital transformation to continue to change the bank’s business model.
“The launch of Affin’s new Digital Bank proposition is expected to help rebuild current account savings account (CASA) growth, while the launch of new products such as multi-currency card and BHP credit card could help support fee income and loans growth,” TA Research said.
In addition to efforts to re-engineer the balance sheet to manage net interest margin better, Affin would invest in a higher-margin business model, the brokerage noted.
Meanwhile, MIDF Research raised its earnings forecast for Affin by 17% FY21; 1% for FY22; and 5% for FY23.
“We adjust it to account for a quicker-than-expected recovery in earnings as well as the promising improvements on cost of funds as a result of Affin’s focus on developing its CASA base. We expect the prosperity tax and provisions to provide notable downside on its forecast FY22 earnings,” the brokerage said in its report yesterday.
MIDF maintained its “neutral” call on Affin, with an unchanged target price of RM1.57.
“Affin has shown promising results within the quarter, with steady net interest margin, net interest income and CASA growth. The management’s efforts in optimising cost controls and revenue streams have shown discernible results,” it said.
“However, there remains some reservations concerning the consistency of such earnings delivery. Additionally, we believe that elevated credit cost, expected further overlays and news surrounding the Raffles Education situation will prevent any major positive share price rerating in the near future,” it added.