Affin divestment to bring dividend cheer

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The proposed divestment is expected to be completed by end of this month and would also raise the bank’s common equity Tier-1 (CET1) capital ratio.

PETALING JAYA: Shareholders are likely to celebrate a special dividend from the divestment by Affin Bank Bhd of its stake in Affin Hwang Asset Management Bhd (AHAM).

The proposed divestment is expected to be completed by end of this month and would also raise the bank’s common equity Tier-1 (CET1) capital ratio.

The bank received the green light from its shareholders in May to proceed with the disposal of its 63% stake in AHAM by Affin Hwang Investment Bank Bhd to Starlight Asset Sdn Bhd for RM1.42bil.

CGS-CIMB Research said the disposal would increase the bank’s CET1 capital ratio from 13.9% at end-March 2022 to around 16%.

“As this would be higher than the CET1 capital ratio of 15.1% for the industry, we see the possibility of Affin paying out some of the AHAM divestment proceeds as a special dividend.

“Assuming its CET-1 capital ratio post disposal is lowered from 16% to the industry’s 15.1%, we estimate a special dividend of 22 sen per share (additional dividend yield of 11.2%).

“Any special dividends by banks are subject to Bank Negara’s approval,” the research house added.

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In May, Affin Bank president and chief executive officer Datuk Wan Razly Abdullah Wan Ali was reported as saying the divestment of AHAM would result in a RM1.06bil gain and the proceeds have been earmarked for special dividends and to reinvest into its core banking business.

“We do have the intention to reward shareholders for their support. We needed shareholders’ approval for the divestment,” he said.

The positive takeaway from the meetings between Affin Bank’s management with institutional investors was the guidance for robust loan growth of 12% and a seven basis point expansion in net interest margin (NIM) in 2022.

This could lead to more than 10% growth in its FY22 forecast net interest income (NII).

“We are nevertheless more conservative in our forecasts of an 8.8% jump in FY22 NII, arising from our projected FY22 loan growth of 10% and a four basis point contraction in NIM, as we think the bank may have to sacrifice some margin to achieve swift loan growth,” the research firm added.

“We also lower our earnings per share forecasts by 2% to 4% for FY22-24 as we increase our assumed share base from 2.12 billion shares to 2.21 billion shares to factor in the 88.3million new shares issued under the dividend reinvestment plan.

“This pushes down our dividend discount model-based target price from RM2.19 to RM2.17,” CGS-CIMB said.

The research house, which is upgrading Affin Bank from “hold” to “add”, said the potential re-rating catalysts include its best-in-sector loan growth, strong NII expansion and potential special dividend.