Positive developments in 1Q25 for Affin Bank

PETALING JAYA: Affin Bank Bhd’s had a decent start with a RM124mil net profit in the first quarter of financial year ended March 31 (1Q25).

The performance was below consensus estimates of analysts but they note a couple of positive developments in the quarter.

One is overhead costs were flattish year-on-year (y-o-y) in 1Q25 potentially due to cost savings from its early retirement scheme implemented in 4Q24.

The other positive as observed by CGS International (CGSI) Research is the bank’s cost of fund declined by 11 basis points y-o-y and 16 basis points from 4Q24, which led to an expansion in net interest margin (NIM) in 1Q25.

The research firm sees potential net profit growth of around 10% in 2Q25 at around RM130mil, underpinned by higher net interest income and benign credit cost.

“Upgrade to ‘hold’ as we see Affin as one of the key beneficiaries of the recent Statutory Reserve Requirement (SRR) cut and potential overnight policy rate (OPR) cuts by Bank Negara in 2025,” CGSI Research said in a report.

It expects the central bank to cut OPR by 25 basis points to 2.75% in the second half of this financial year. For every 25 basis point cut in OPR, this would raise Affin’s financial year 2026 (FY26) net profit by around 3%, it projects.

As for FY25 to FY27, it projects the bank’s net profit to grow between 1.7% and 2.5%, taking into account the SRR cut from 2% to 1% effective May 16, 2025.

The profitability estimates also factored in Affin’s bonus issues which led to an issuance of 133.3 million new shares.

Another positive is the bank’s robust inflow of CASA (current account savings account) from Sarawak government-linked companies.

According to analysts, this signals early tangible benefits stemming from the Sarawak government’s strategic involvement as the bank’s largest shareholder.

Coupled with the anticipated implementation of the Sarawak state civil servant payroll and a strong pipeline of new corporate payroll accounts, Hong Leong Investment Bank (HLIB) Research said these underpins expectations for further NIM expansion.

At the same time it noted that Affin is actively reducing reliance on expensive fixed deposits to focus on its overall deposit pricing strategy to further strengthen its NIM. Loan growth moderated to 7.1% y-o-y, falling short of management’s ambitious 12% loan growth target for 2025.

However, HLIB Research said the bank’s management indicated a substantial loan pipeline of RM9.5bil remains. Coming to asset quality, Affin’s gross impaired loan (GIL) ratio improved 10 basis points from the previous quarter to 1.84% in 1Q25.

“Despite that, mortgage GILs continued to trend upwards given pockets of stresses in that portfolio.

“Meanwhile, management highlighted that stress testing indicated that while the impact from loan exposure related to US trade is minimal, a greater adverse impact is anticipated from a broader economic slowdown instead,” said HLIB Research, which kept its “buy” call and RM3 target price on the stock.

According to analysts, the bank’s management has retained its key 2025 guidance of a return on equity of 6%, loans growth at 12% and NIM of 1.55%.

Valuation wise, HLIB Research said the stock currently trades at one standard deviation to its 10-year mean.

“We believe the premium is fair given the emergence of the Sarawak government as Affin’s largest shareholder, presenting it with better prospects to leverage the state’s growth ambitions.”

However, UOB Kay Hian Research is maintaining its “sell” call with a target price of RM2.38 despite an improving CASA mix. It thinks the value unlocking potential from the Sarawak government has been more than priced in.

The Sarawak government emerged as Affin’s major shareholder in Nov 2024.

At the time of writing the stock was trading at RM2.71, which is close to levels it was at the start of 2025.