KUALA LUMPUR: Affin Bank's third-quarter financial performance reflects a balanced outlook for investors, supported by stronger income and asset quality improvements but tempered by narrowing profit margins, according to Hong Leong Investment Bank (HLIB).
The bank's Q3 net profit surged 23 per cent quarter-on-quarter (QoQ) to RM146 million, marking a 45 per cent increase year-on-year (YoY), which is within HLIB's expectations, making up 73 per cent to 74 per cent of the firm and consensus full-year forecasts.
Non-interest income (NOII) climbed 62 per cent, bolstered by robust fee and forex gains, while the gross impaired loans (GIL) ratio declined to 1.74 per cent, reflecting successful recoveries and write-offs.
Despite these gains, Affin's net interest margin (NIM) narrowed by nine basis points during the quarter, limiting faster profit growth, and the lack of dividend declarations for Q3 also reflected a conservative stance, with payouts expected in Q4.
HLIB noted that Affin's loan-to-deposit ratio (LDR) improved to 96 per cent as deposits rebounded 3.3 per cent YoY.
The firm also stated, "We expect NIM to continue to compress in 4Q24, seeing that FD competition typically heats up in the Oct-Dec period.".
Affin's cautious loan origination strategy aims to attract higher-quality borrowers, signalling moderate growth in the short term while long-term prospects appear brighter, with Sarawak emerging as Affin's largest shareholder.
While challenges remain, including asset quality risks and narrowing margins, HLIB emphasised that Affin's share price reflects a more balanced risk-reward profile.
"We find Affin's risk-reward profile to be more balanced now as its share price has fallen some 16 per cent from its recent August peak," it said in a note.
Overall, HLIB has increased its rating for Affin to "Hold," raising its target price to RM3.10 from RM2.80, citing the bank's steady growth trajectory and emerging opportunities.