An Affin-ity for assets

EVERY now and then, banks do things that may appear a little puzzling to the market, at face value, at least.

CIMB Group Holdings Bhd is one such example. In 2023, it completed the sale of its entire stockbroking business to CGS International Holdings Ltd.

CIMB then re-entered the stockbroking business by purchasing KAF Equities Sdn Bhd last year, rebranding it later as CIMB Securities Sdn Bhd.

Now, it appears Affin Bank Bhd is going down the same road.

After selling its entire stake in Affin Hwang Asset Management (later renamed AHAM Asset Management by its new owner) to global private equity firm CVC Capital Partners in 2022, it recently announced that it plans to buy another asset management firm, Pheim Asset Management Sdn Bhd, this time for RM50mil in cash.

In a filing to Bursa Malaysia on Nov 20, Affin says the proposed acquisition “supports the group’s vision to become a universal bank with expansion into asset management business and improving the group’s value to clients.”

Additionally, the lender also says the proposed deal will “give the opportunity for the group to develop new funds with fresh and innovative investment themes to cater to diverse investment needs of the group’s clients and complements the group’s wealth solutions.”

It also says the proposed acquisition “aims to diversify income through asset management’s stable revenue streams and advisory services.”

Additional questions sent to Affin on this proposed deal were unanswered as at press time.

An analyst with a bank-backed brokerage reckons the proposed buyout is good for Affin’s long-term business expansion, leveraging on the synergistic value stemming from up-selling.

“But the earnings impact should be quite minimal for the first five years, give and take,” he tells StarBiz 7.

He says Pheim’s assets under management (AUM) size is still relatively too small to shake up Affin’s profit and loss (P&L) for now.

“I believe they need to figure out how exactly to grow the AUM until it reaches a meaningful phase. It is a good deal indeed, but time is needed to prove how it can generate meaningful income for the Affin group.”

As of June 30, Pheim was managing RM875.74mil in assets.

For the fiscal year ended Dec 31, 2024, Pheim posted RM1.58mil in profit after tax, and had net assets of RM25.61mil and RM21.60mil in cash and fixed deposits.

The senior analyst reckons that Affin’s so-called return to the asset management business after selling off Affin Hwang is not as mind-boggling as it sounds.

“From what I understand, the reason why Affin sold off Affin Hwang was because it needed capital for expansion, plus it did not have a 100% stake which meant it couldn’t really steer the company in the direction it wanted.

Completing the puzzle for a steal?

“So, given that an offer was on the table, why wouldn’t it just dispose the entity at such an attractive price, after which it could inject those fresh proceeds into the banking side of the group?” he says.

Back to the current scenario, the analyst points out that Affin is now proposing to buy back an asset management business for “only” RM50mil (effectively, it is RM28.4mil because there is approximately RM21.6mil sitting in Pheim’s bank accounts).

“And this is for a 100% stake, that’s why I see this as a good deal because Affin can finally insert the missing jigsaw piece into the entire puzzle they way it likes,” he adds.

In his report to clients, Hong Leong Investment Bank analyst Raymond Ng says Affin’s earlier disposal in 2022 was valued at RM1.6bil for a 68.4% stake, which implies a price to AUM of 2.8%.

Given the price tag of RM50mil for a 100% stake in Pheim, this translates to a price to AUM of 5.7% which is at a premium versus Affin’s earlier disposal, he says.

“Regardless, we are unperturbed as Affin had pocketed around RM1bil in profit as divestment gain from Affin Hwang’s disposal and rebuilding its asset management business now only takes up a small fraction of this – at RM50mil,” says Ng.

He views the acquisition positively, as it “diversifies Affin’s revenue stream through cross‑selling across conventional and Islamic segments.”

“Leveraging on Affin’s high net worth portfolio, Pheim’s AUM has the potential to grow exponentially via Affin’s distribution channels, driving higher recurring management fee income amidst reduced reliance on third party funds.”

Ng notes that Affin requires a “captive” asset manager to legally and operationally manage these flows, and Pheim provides the necessary platform.

“That said, we expect meaningful P&L contribution only from FY27 onwards, given that the gestation period for AUM expansion will take approximately 2-3 years,” he adds.

In its notes to Bursa, Affin says that upon completion of the proposed acquisition, Pheim will become a wholly-owned subsidiary of Affin and the financial results of Pheim and its subsidiaries will be consolidated into the financial statements of Affin.

Barring any unforeseen circumstances and subject to all required approvals being obtained, the proposed acquisition is expected to be completed by the first quarter of next year.

The proposed deal is subject to Bank Negara Malaysia, the Securities Commission and any other third party consent, where required.