KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB) has turned bullish on Affin Bank Bhd given strong likelihood of value unlocking for Affin Hwang Asset management Bhd in the near-term, potential divestiture of its insurance units, followed by possibility of special dividends.
HLIB is looking at a generous dividend yield of 27 per cent.
Besides, Covid-19 vaccination rollout and the healing economy will drive better financial showing at Affin's banking operations, which had already shown signs of bottoming out.
"Moreover, Affin's current price point is attractive and it is a laggard in the banking sector. Although we were critical of its asset quality and low ROE (return on equity) previously, the risk-reward profile seems more favourable now," HLIB said in a report today.
Overall, HLIB does not make changes to Affin's financial year 2021/2022 profit forecasts and has introduced FY23 estimates.
Affin is also upgraded to a "Buy" with a higher target price of RM2.25 from RM1.85 previously, based on 0.43x FY22 price to book value.
HLIB said Affin was one of the poor performing banks under its coverage as share price had fallen five per cent year-to-date.
"Hence, we reassess our investment thesis and its risk-reward profile," it added.
The firm sees high chance that Affin's 63 per cent-owned Affin Hwang Asset would go for listing in the next one to two years.
"We believe the time is ripe for this value unlocking move to transpire given its asset under management (AUM) has grown strongly versus pre-Covid-19 levels (FY20: up 26 per cent year-on-year), key personnel have exercised their share options early in March 2019 (way ahead of the expiration in June 2024), capital markets are vibrant, and there is ample liquidity in the market.
Affin Hwang Asset could fetch RM1.4 billion market capitalisation against an AUM of RM76 billionn.
HLIB said this was based on a valuation of 1.8 per cent price to AUM (in line with the acquisition multiple paid for Affin Hwang Asset back in 2014), translating to a trailing FY20 price earnings of 12.0x and price to book of 4.5x.