The BEA play in Affin

PETALING JAYA: Will Bank of East Asia Ltd (BEA), in which Tan Sri Quek Leng Chan has a major stake, sell some of its 24% stake in Affin Bank Bhd?

MIDF Research is not ruling out the possibility, pointing out that valuation will be a major determinant for such a decision.

The suggestion came at a time when the Sarawak state government is rumoured to consider acquiring a 30% stake in Affin, the country’s second-smallest bank by market value.

At this point, Affin’s valuation is “very elevated”, benefiting existing shareholders that want to cash out. The stock has risen by over 32% since mid-2023.

The Hong Kong-listed BEA, which is Affin’s second-largest shareholder, has held onto its stake for over thirteen years.

It is noteworthy that Quek owned a 16.26% stake in BEA as of end-2022.

Billionaire Quek, who is the second-richest man in Malaysia according to Forbes list of Malaysia’s 50 Richest in 2023, is also the chairman of Hong Leong Group.

Nevertheless, MIDF Research thinks that BEA is unlikely to pare down its stake at “current juncture”.

It said that BEA has kept Affin shares even when the bank’s balance sheet was in far worse shape.

“We note that Affin has made significant improvements in the past few years, and we believe the BEA will likely want to reap these benefits.

“However, we are not ruling out anything,” it said.

MIDF Research released a note on Affin yesterday titled “Eyes on the East”, two days after Sarawak Premier Tan Sri Abang Johari Openg said the state government will acquire “maximum block shares” in a commercial bank as allowed by Bank Negara.

The commercial bank he referred to was Affin.

It is openly known that the state government is in discussion with the Armed Forces Fund Board (LTAT) to further raise its equity interest.

Last April, LTAT divested 4.95% of its shares to the Sarawak state government. Currently, LTAT controls a 28.8% equity interest in Affin, while its wholly-owned unit Boustead Holdings Bhd has a 20% stake.

A news portal reported earlier that the Sarawak government could be vying for a 30% stake in Affin, rather than the previously mentioned 20%.

MIDF Research said the change in proposed stake is significant as it determines who will be the largest shareholder at Affin Bank, and this could influence its future direction.

“We feel that a 30% stake would make more sense from the Sarawak state government’s perspective – as the largest shareholder, it will be able to exercise significantly more control over the bank’s direction – in line with the state’s intention to provide the financing for the state development initiatives.

“It is also possible that it could have a higher stake, albeit via indirect means.

“Also, it should be stated that these are all subject to Bank Negara’s approval,” it added.

MIDF Research upgraded its call on Affin to “neutral”, although it said the bank’s fundamentals are still weak.

However, the entry of a new shareholder could have some minor benefits, it said.

“We think it provides Affin with increased investment banking opportunities (given that its non-interest income hasn’t fully recovered from the Affin Hwang Asset Management disposal).

“It also provides Affin opportunities to build up its small and medium enterprise and corporate segments, especially when the group is looking to move away from lower-yielding consumer loan segments,” it added.

However, MIDF Research highlighted that Affin is still far too expensive for its valuation, given the multiple headwinds it faces in the near future.

“We feel that benefits brought about by a new shareholder will take some time to manifest.

“Affin current valuations are unattractive, given its low return on equity-generating potential.”