HLIB sees profit boost ahead for Affin Bank
In a note today, the firm maintained its "Buy" call on the bank with an unchanged target price of RM3.00, implying a 0.60 times financial year 2026 (FY26) price-to-book value.
"While sector-wide asset yields have gradually declined, Affin's primary challenge and significant opportunity lie in managing its cost of deposits.
"We believe multiple levers are now in place to support net interest margin (NIM), including the statutory reserve requirement by Bank Negara Malaysia, partially offering the impact of the 25 basis points Overnight Policy Rate cut.
"The bank also slashed its fixed deposit promotional rates by 35 to 50 basis points, more than its peers. This steeper reduction suggests a deliberate strategy, likely driven by the anticipation of cheaper funding sources," the firm said.
HLIB also noted that the inflow of low-cost current account and savings account (CASA) funds, especially from Sarawak government-linked companies and upcoming civil servant payroll accounts, has positioned Affin to reduce its reliance on expensive funding.
"Affin has been actively refreshing its digital offerings, including its recently launched AffinAlwaysX app for retail and revamped AFFINMax mobile app for businesses, both of which should enhance product and CASA stickiness," it added.
HLIB said that despite peers' cautious stance, the market may be underpricing the bank's return on equity inflection point.
"In the second quarter of 2025, Affin's net interest income is expected to hold steady, supported by a strong loan base and a stable sequential NIM.
"The bank's loan pipeline remains strong at RM9 billion, while proactive cost-of-funds optimisation efforts are likely to offset asset yield pressure," it said.
Meanwhile, with the 10-year Malaysian Government Securities yields currently still trading below 3.5 per cent, HLIB sees there is significant room for Affin to capitalise on favourable trades.
"Given stable asset quality, we expect the improved recovery momentum should keep net credit cost in the single digits for FY25.
"Overall, HLIB sees upside potential in Affin's risk-reward profile, particularly given the strategic backing from the Sarawak government.
"Further upside largely hinges on tangible benefits emerging from the Sarawak government's strategic involvement," it added.
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