PETALING JAYA: While it does not occur frequently in the world of investment research, analysts are split in their opinion on the short-term prospects of Affin Bank Bhd, after the Sarawak government increased its stake in the lender.
According to Affin Bank last Friday, the Sarawak government, via its wholly-owned subsidiary SG AssetFin Holdings Sdn Bhd (SAH), has completed the purchase of Affin Bank shares from its major shareholders, Lembaga Tabung Angkatan Tentera (LTAT) and Boustead Holdings Bhd, increasing its equity in the bank to roughly 31% from 5% previously.
While the details on the expenses of the latest transaction are still obscure, pending the completion of final administrative approvals from the regulators, CIMB Securities is assuming the cost of the latest additional 26% stake to be around RM2.50 per Affin Bank share, based on previous reports.
“Together with the earlier April 2023 initial stake of 5% at RM222mil or RM1.97 per share, we estimate that the Sarawak government’s total cost for the 31% stake amounts to RM1.76bil,” it said.
One benefit to the bank stemming from the transaction would be an expected increase in current account-savings account (Casa) deposits, said the research unit after observing that there has been no significant deposit contribution from the Sarawak government over the past one year after its initial acquisition of a 5% stake in the lender.
“We are now assuming new Casa potential in the financial year ending 2025 (FY25) of at least RM4bil from the new major shareholder.
“This should correspondingly allow the release of more expensive fixed deposits,” said CIMB Securities.
Besides the lower cost of funds, the research house said the improving Casa mix and the normalisation in fixed deposit promotion rates are also key reasons for its general optimism over the counter, on which it has maintained a “buy” call with an upgraded target price of RM4.30.
Rakuten Trade Sdn Bhd research vice-president Vincent Lau.Rakuten Trade head of equity sales Vincent Lau resonated with the positive outlook, commenting that banking counters should continue to do well on the FBM KLCI and that Affin Bank would benefit from having a stronger parentage.
Besides that, he told StarBiz that the lender should also benefit from the developing Sabah and Sarawak infrastructure play theme, which stands the group in good stead even over the longer term.
“While we acknowledge that the stock price has indeed appreciated, we believe there is still potential upside to it, especially in light of the latest turn of events.
“Interesting times ahead for Affin Bank with the Sarawak government and LTAT as its anchor,” said Lau.
In addition, MIDF Research said from a fundamental perspective, the Sarawak government appears to be in line with Affin Bank’s current direction, possibly providing the lender with increased investment banking opportunities.
The securities firm said the transaction also opens up opportunities for the bank to build up its small-medium enterprise (SME) and corporate segments, especially when the group is looking to move away from lower-yielding consumer loan segments.
It said: “The Sarawak government via SAH intends to use Affin Bank to boost the state’s financing of SME and business activities.
“Stronger growth of these SME and corporate segments is in line with Affin Bank’s current direction in improving asset yields and net interest margin (NIM) profile.”
Having mentioned all that, however, MIDF Research stressed that it is important not to overstate the benefits brought about by these changes, asserting that the stock is still overvalued at the current juncture, particularly given the multiple headwinds the bank faces in the near future.
It pointed out that the group’s NIM has been underperforming of late and its average retail Casa interest rate of approximately 3% is above-industry high.
“At the same time, loan yields will continue to remain weak, as management is reprioritising consumer loans once more and moving away from the SME segment,” added MIDF Research.
The securities unit is maintaining its “sell” call on Affin Bank, albeit with a higher target price of RM2.35 as it deems the stock’s price has proceeded ahead of fundamentals.
Meanwhile, TA Research said the recent acquisition of a substantial stake in Affin Bank by the Sarawak state government positioned the bank to significantly strengthen its presence in the region.
With ongoing developments in Sarawak, the research house is optimistic about the state’s economic prospects, as it is poised to become one of Malaysia’s key economic catalysts.
“As the financing vehicle for the Sarawak government, Affin Bank is ideally situated to capitalise on the state’s growth potential.
“The banking group is expected to benefit across multiple business segments such as advisory roles, loan growth opportunities stemming from SMEs and various infrastructure and green energy projects currently being prioritised by the state,” it commented.
Nevertheless, it highlighted that the bank may face near-term cost pressures as the latter seeks to strengthen its digital capabilities and expand its physical presence in Sarawak.
TA Research reported that Affin Bank aimed to reduce its cost-to-income ratio from 71.6% in FY23 to 64%, which will require careful management of resources and strategic investment in technology and branch infrastructure.
As such, the brokerage is also keeping its “sell” call on the counter for the moment, agreeing with MIDF Research that Affin Bank’s share price has risen deeply ahead of its fundamentals.
The research house holds a target price of RM2.95 on the stock.
