This article first appeared in The Edge Malaysia Weekly on September 25, 2023 - October 1, 2023

EXPECTATIONS that Affin Bank Bhd is likely to benefit from playing a bigger role in Sarawak’s economic development have driven up the banking group’s share price this month.

The stock surged 9.9% or 19 sen over two trading days to close at RM2.11 on Sept 5 on unusually strong trading volumes, before hitting an almost 10-month high of RM2.12 on Sept 19.

The sudden spike in the share price gave rise to market talk that the Sarawak government, which emerged as a 4.95% shareholder in April, may have upped its stake in the group. However, Affin Bank president and group CEO Datuk Wan Razly Wan Abdullah Ali pours cold water on the speculation.

“There is no change in [Sarawak’s] shareholding,” Wan Razly tells The Edge, when asked if there had been any key shareholding changes at the bank.

He notes that the recent strong interest in the bank’s shares coincides with an investor conference that Affin Bank hosted in Kuching on Sept 4 that shone a spotlight on Sarawak’s role in the Malaysian economy and on upcoming economic projects there.

“We took institutional investors there, and I think they came out quite positive from the conference. People may have [anticipated] that Affin could be in on some of the deals in Sarawak, given that the state holds a stake in us. It does help open doors for us,” Wan Razly remarks.

According to him, Affin Bank hopes to play a bigger role in Sarawak’s economic development via project financing and the like.

Earlier in July, Sarawak Premier Tan Sri Abang Johari Tun Openg unveiled Sarawak’s Post Covid-19 Development Strategy 2030, or PCDS 2030, that identified six economic sectors as the main engines of the state’s growth, namely manufacturing, commercial agriculture, tourism, forestry, mining and social services.

Back in April, the state — via State Financial Secretary of Sarawak — acquired a 4.95% stake in Affin Bank from the lender’s controlling shareholder Lembaga Tabung Angkatan Tentera (LTAT) for RM221.74 million, or RM1.97 a share, in a direct business transaction.

The bank’s top shareholders as at Sept 21 were LTAT with a 28.79% stake, Hong Kong-based Bank of East Asia Ltd (23.93%), Boustead Holdings Bhd (19.91%) and the Employees Provident Fund (6.14%). Boustead is owned by LTAT.

Industry sources say Sarawak has been looking for opportunities to raise its stake in Affin Bank to a more meaningful level — ideally, up to at least 20% — but this would require one or more of its top shareholders disposing of some of their shares. Such a move would require Bank Negara Malaysia’s approval.

“It all comes down to pricing,” says a source, who believes that some of the top shareholders would be willing to pare down their holdings if the offer price was attractive.

Sarawak already owns a development bank, Development Bank of Sarawak Bhd. Last year, it failed to secure one of the five digital bank licences issued by Bank Negara. It had applied for the digital licence as part of a consortium with Kenanga Investment Bank and Revenue Group.

RHB Research notes in an Aug 28 report that the new Sarawak shareholder “could possibly be a growth wild card” for Affin Bank in the longer term. 

Bloomberg data shows that of the seven analysts who track the stock, three have a “buy” call while the rest have a “hold, with an average 12-month target price of RM2.11. The stock closed at RM2.11 on Sept 21, giving the counter a year-to-date gain of 8.4% and the company a market capitalisation of RM4.95 billion. Its highest close in the last 12 months was RM2.48, on Nov 29 last year.

The bank has made significant  strides in the last two years in its efforts to transform itself into a stronger entity. Notably, its gross impaired loan ratio — an indicator of asset quality — had improved to 1.78% as at June 30, its lowest in seven years.

Be that as it may, macroeconomic headwinds are growing and analysts say Affin Bank, like most banks, is in for a tougher year in 2023. In 1HFY2023, the group’s net profit fell 9.5% to RM262.2 million mainly because of lower interest income arising from a contraction in net interest margin (NIM).

“While guidance for NIM and return on equity (ROE) were toned down to reflect the year-to-date performance, management is still confident in Affin Bank’s loan growth prospects and asset quality position. Its price-to-book value of 0.4 times appears attractive against a 5.8% ROE target and [dividend] yield of about 8%,” says RHB Research, which has a “buy” call on the stock.

Notably, the group’s total assets recently crossed the RM100 billion mark for the first time, standing at RM100.86 billion at end-June. While it remains the second-smallest of the country’s eight banking groups by asset size, it has narrowed the gap with its nearest competitor AMMB Holdings Bhd, which had assets of RM194.11 billion at end-June. 

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