Special dividends among options for Affin Bank

PETALING JAYA: Affin Bank Bhd is still mulling over the use of its RM1.54bil proceeds, which translates to RM1bil net gains, from its asset disposal and analysts believe a portion could be funnelled into special dividends.

Besides that, the banking group could likely fuel its core banking business activities – which it credited its industry-leading 15% loans growth albeit at a lower base to its peers – to more proactive sales tactics applied.

“Its key markets will continue to be in the retail space where it is seeing the most traction, particularly in mortgages,” said Kenanga Research.

The proceeds are from the disposal of Affin Hwang Asset Management Bhd, which was completed in July this year.

Besides that, the activation of its mobile banking app in the fourth quarter of financial year 2022 (4Q22) should enable wider penetration in current account-savings account products to keep funding costs manageable.

In spite of strong performances in these two quarters, the group is cognisant of near-term macro risks and kept its FY22 targets unchanged for now.

However, Kenanga believes its 12% loan growth target could be beaten.

The house is maintaining its “outperform’’ call on the stock with a target price of RM5.07 a share.

It believes Affin’s monetisation of its business units (AHAM and AXA Affin by August 2022) could progressively refine Affin’s identity as a more comparable traditional bank akin to its listed peers, which may at times fetch a higher valuation for the group.

Its dividend yield prospects of 5% to 6% (excluding possible special dividends) could incentivise investors to overlook its low return-on-equity levels, which should gradually be enhanced with its growth plans.

For the financial year ended June 30, 2022 (FY22), Affin’s net profit increased 24% to RM146.9mil in the second quarter compared with RM117.9mil posted a year ago.

This was led by higher net interest income and contribution from its Islamic banking segment.

The higher net profit was further supported by lower allowance for impairment losses, offset by lower non-interest income and higher operating expenses.

The house also tweaked its FY22/FY23 earnings by 1% higher each on model updates.

It cited risks to its call being higher-than-expected margin squeeze, lower-than-expected loans growth and worse-than-expected deterioration in asset quality.

It also expects further slowdown in capital market activities, adverse currency fluctuations and changes to the overnight policy rate.