KUALA LUMPUR (May 20): Affin Bank Bhd (KL:AFFIN) is seen to have strong growth potential in Sarawak, following the Sarawak government’s emergence as its largest shareholder, analysts said.

In a research note on Tuesday, Hong Leong Investment Bank (HLIB) said, “the emergence of the Sarawak government as Affin’s largest shareholder [presents] it (Affin) with better prospects to leverage the state’s growth ambitions”.

HLIB expects the strength in current and savings accounts (Casa) to be sustained, following robust inflows of Casa from Sarawak government-linked companies in the first quarter.

Since Casa typically carries little to no interest and has a lower cost of funds compared to fixed deposits, this will help reduce overall funding costs for the bank.

Coupled with the anticipated rollout of the Sarawak state civil servant payroll, along with a strong pipeline of new corporate payroll accounts, these factors are expected to support further expansion in net interest margin, the research house noted.

“Further upside largely hinges on tangible benefits emerging from the Sarawak government’s strategic involvement,” the research house said, adding that Affin currently trading at a one standard deviation premium to its 10-year mean is deemed fair.

“We believe Affin’s risk-reward profile remains tilted to the upside, with significant growth prospects that are yet to fully materialise.” 

As such, HLIB maintains a “buy” call with an unchanged target price (TP) of RM3 on Affin, mainly due to a lowered beta assumption from one times to 0.9 times, to reflect the bank’s improved risk profile.

The research house noted that management’s stress testing suggests minimal impact from loan exposures tied to US trade, but a broader economic slowdown is expected to have a more significant adverse effect.

However, CIMB Securities maintained its “hold” call on Affin, with an unchanged TP of RM2.80, after the bank’s first-quarter results came in below consensus expectations.

Its annualised first-quarter net earnings were 35.1% below the house’s forecast and 8.3% below consensus estimate.

Despite resilient asset quality and a lower-than-expected cost of funds, CIMB Securities remains cautious due to the bank’s higher-than-anticipated credit costs and persistently elevated funding expenses.

The research house noted that Affin has indicated plans to conserve capital for growth, and does not intend to pay dividends for the forecasted FY2025.

Meanwhile, HLIB said Affin’s recently announced 1Q2025 core profit after tax and minority interests (Patami) came within expectations, meeting its full-year forecast at 24%, but fell short of consensus.

However, the results came in 35.1% below CIMB Securities’ forecast, mainly due to softer net interest income.

There are 11 research houses currently covering Affin — two on “buy”, six on “hold”, and “three” on sell recommendations on the stock. The average TP stands at RM2.59, according to Bloomberg, suggesting a potential loss of up to 4.4% in the next 12 months, from the last price of RM2.71.

At the time of writing on Tuesday, shares of Affin were down one sen or 0.4% to RM2.71, giving the group a market capitalisation of RM6.87 billion. The counter is down 2.17% this year. 

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