KUALA LUMPUR (Nov 20): Affin Bank Berhad's net profit of RM362.7 million for the first nine months ended September 30, 2023 (9MFY2023) fell short of Kenanga Investment Bank's expectations, reaching only 68% of the full-year forecast due to an underestimation of the extended compression of net interest margin (NIM) in 3QFY2023.

However, the results were within market expectations at 72% of the full-year consensus estimate.

According to a note on Monday, Kenanga stated that Affin’s net interest income for 9MFY2023 sank by 17% year-on-year (y-o-y) on continued NIM compression as the group faced higher funding costs from past overnight policy rate hikes.

The research house noted that Affin Bank's persistent NIM compression in 3QFY2023 has adversely impacted its full-year earnings projections.

“The upcoming 4Q periods are expected to be more competitive in the pricing landscape, posing additional challenges for the group. Recognising that its earlier NIM guidance of 1.86% is unattainable, the group has revised its target to a range of 1.45% to 1.50%.

“In light of the potential impact on the top line, the group has expanded its cost-to-income ratio (CIR) target to 65% (from 60%), taking into account increased wages resulting from previous collective adjustments,” it added.

With that, Kenanga cut its fiscal year 2023–2024 earnings forecasts by 7-12%, mainly to account for the softer NIM outlook. It downgraded Affin Bank to “market perform” with a lower target price (TP) of RM1.90 from RM2.20.

On a brighter note, Affin’s loan growth remained supportive at 12%, driven by better mortgage and hire purchases. Its non-interest income from forex and Treasury gains showed a 97% drastic increase, which led to a flattish improvement in total income.

On the other hand, Hong Leong Investment Bank (HLIB) stated that Affin Bank’s net profit of RM363 million was within its expectations, making up 71% of its and 72% of the consensus full-year forecasts.

HLIB expects NIM to broaden in 4Q2023, given the redemption of expensive sukuk in October 2023.

However, it noted there should be limited expansion from thereon since expensive fixed deposits from the January to March 2023 cohort would have already been repriced down.

“Also, lending yield is seen to remain competitive given its above-sector average loan growth. That said, we still expect credit growth to taper due to the soft macro environment coupled with the base effect."

“However, we are not overly worried about any asset quality weakness, as we believe Affin is better equipped compared to prior slumps (LLC is now at 124% vs. the pre-pandemic level of circa 35%),” it added.

It maintained its “hold” call on Affin Bank with a TP of RM 2.20.

Meanwhile, TA Securities is more optimistic about Affin Bank; it stated that it has tweaked its NIM slightly lower to align with the 9MFY2023 results while anticipating a potential tapering of loan growth to address macro challenges in FY2024.

On a positive note, it stated that Affin’s total assets remained in excess of RM100 billion, on track with Affin’s A25 transformation plan.

In terms of income, it noted stronger business-as-usual fee income, as Affin fills the gap from the sale of AHAM with new revenue streams from debt capital markets advisory flows.

“Management will also be looking to scale up in high-margin businesses and fee-based income such as FX, banking, wealth management, and trade."

“The recent launch of a new mobile app in October 2023 is expected to continue to play a pivotal role in building Affin’s Casa franchise, stabilising NIM, and strengthening its customer base," it added.

Therefore, TA Securities upgraded Affin Bank from “sell” to “hold” with a revised target TP of RM2.15 from RM2.05.