Affin Bank in for some value unlocking


Affin Bank's 63%-owned Affin Hwang Asset Management (AHAM) is expected to go for an IPO over the next one to two years and this should unlock some value for Affin, one of the two smallest lenders in the country.

PETALING JAYA: Besides the now well-priced in factor of an improving economy, Affin Bank Bhd has another factor going for it in the form of its subsidiary’s pending initial public offering (IPO).

Its 63%-owned Affin Hwang Asset Management (AHAM) is expected to go for an IPO over the next one to two years and this should unlock some value for Affin, one of the two smallest lenders in the country.

To be sure, it is one of the main reasons why Hong Leong Investment Bank’s (HLIB) research unit said it was turning bullish on Affin.

“We are turning bullish on Affin considering (the) strong likelihood of value unlocking for AHAM in the near term, potential divestiture of its insurance units, followed by the possibility of special dividends (we are looking at a generous yield of 27%), “ it told clients in a report.

It said it believed the time was ripe for this (AHAM) value-unlocking move to transpire, given that its asset under management (AUM) has grown strongly.

“In our opinion, AHAM could fetch RM1.4bil in market capitalisation against an AUM of RM76bil, “ the research unit said.

It also touched on reports that the group was looking at options for its general and life insurance businesses in Malaysia, including a disposal option which has been said to be able to fetch around RM2.7bil.

“Affin’s stake translates to RM1.4bil. We like the idea of divestiture as it would then allow Affin to be more focused on growing its core banking businesses, “ HLIB said.

As for dividends, it said it believed that there was no need for Affin to hoard excess cash as its balance sheet was already the “least levered” among banks under its coverage, at 7.2 times against the sector’s 9.6 times.

“Also, this move can help to preserve return on equity from declining due to loss of income.”

HLIB noted that major shareholders of Affin like Lembaga Tabung Angkatan Tentera and Boustead Holdings Bhd were incentivised to encourage Affin to divvy out any significant divestiture proceeds.

As for its banking operations, HLIB, like many others feel that the Covid-19 vaccination rollout and healing economy will drive better financial showing.

“Aside from making losses in the fourth quarter of 2020 (due to higher impaired loan provision), we are already seeing signs of bottoming out, “ HLIB said.

That said, Affin’s gross impaired loan ratio has creeped upwards (+66 basis points).

“But we are not overly concerned as Affin has made substantial preemptive provisioning in financial year 2020 and we reckon credit risk has been adequately priced in by the market.”

At last look, Affin shares were at RM1.78 a piece, valuing the entire banking group at around RM3.7bil.

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