PETALING JAYA: Analysts generally have lowered Affin Bank Bhd
’s earnings projections for the financial year 2026 (FY26), FY27 and FY28 given the group’s earnings underperformance in its recent second quarter of financial year 2026 results. (2Q26).
The group’s 2Q26 net profit fell 5.9% quarter-on-quarter and eased 11.1% year-on-year to RM127.5mil, bringing first half of FY26 (1H26) earnings to RM263mil due to elevated provisions and weaker associate contributions.
In a note to clients, CIMB Research trimmed Affin Bank’s FY26, FY27 and FY28 earnings forecasts by 7%, 5.6% and 11.5%, respectively, after incorporating several key model revisions.
This includes raising net credit cost (NCC) assumptions for FY26, FY27 and FY28 to 38.5, 27 and 21.2 basis points (bps), respectively, as Affin Bank now expects NCC to be materially above its earlier guidance of about 13 bps owing to emerging stress from Covid-19 legacy mortgages, the hire purchase portfolio, and credit card delinquencies arising from individual cost-of-living pressures.
The net interest margin (NIM) forecasts were streamlined to 1.53% for FY26 to FY28 (from 1.51% to 1.63%) while the non-interest income projection rose by 14% to 22% on the back of stronger fee income growth and investment income vis-à-vis CIMB Research’s expectations.
It has downgraded Affin Bank to a “hold” call from a “buy” previously, setting a lower target price of RM2.30 per share.
“Our revised target multiple reflects a lower derived return on equity (ROE) of 6.3% (previously 7.2%), comprising an FY26 ROE forecast of 4.33% and a reduced “Sarawak premium” of 2% (versus 2.5% previously) to reflect the group’s unique exposure to Sarawak’s economy.”
The lower target multiple also reflects weaker near-term ROE, higher credit cost uncertainty, and delayed earnings recovery, despite the progress in Affin Bank’s transformation in loan growth, resilient NIM and fee income capabilities.
Given the recent earnings underperformance, Hong Leong Investment Bank (HLIB) Research has also revised Affin Bank’s provision and associates’ income assumptions.
Therefore, the research house lowered its FY26, FY27 and FY28 earnings projections by 9.5%, 8.8% and 12.9%, respectively.It maintained a “hold” on the stock with a lower target price of RM2.30 per share.
HLIB Research said: “Without stronger near-term re-rating catalysts, we opine that potential provisioning upticks are likely to cloud the earnings outlook over the next two to three quarters.”
Notably, Affin Bank is trading near its five-year forward price-to-book mean of 0.5 times, suggesting the market has broadly priced in the near-term positives.
According to HLIB Research, the management remains positive on medium-term growth prospects but is adopting a more cautious stance given geopolitical uncertainty, higher living costs and emerging stress in the consumer segment.
Loan growth should remain supported by the strong pipeline, although Affin Bank intends to reprice loans across the portfolio, including mortgages and auto financing, while selectively shifting towards higher-yielding assets.
On NIM, HLIB Research gathered that near-term pressure from intense deposit competition remains a key risk.
Meanwhile, TA Research has lowered Affin Bank’s target price to RM2.43 from RM2.66, following the downward revision to its earnings forecasts.
Despite the cut, the research house still maintained its “buy” call on Affin Bank as the total potential upside still exceeds the 12% threshold.
It noted that Affin Bank’s management remains cautiously optimistic heading into the 2H, despite persistent global uncertainties. While no broad revisions were made to key financial targets, management noted that credit costs could end the year above the original 13 bps guidance.
The prolonged US-Iran conflict has added pressure on living costs and dampened consumer sentiment.
In response, Affin Bank has tightened underwriting standards and adjusted risk-based pricing for retail products to better manage emerging risks.
Following two consecutive quarters of elevated provisions, an analyst with a bank-backed brokerage believes that Affin Bank’s risk-reward profile has skewed to the downside.
“This is as the next leg of re-rating requires clearer evidence that credit costs have peaked, retail asset quality is stabilising, and NCC is trending back towards normalised levels below 30 bps,” she noted.
