Review

• Reporting a 1QFY24 net profit of RM1,030mn, HLBB’s results came within expectations. Translating to a 4.9% YoY increase, the stronger set of results was underpinned mainly by a net writeback in allowances, along with more robust contributions from associates (+33.8% YoY). 1QFY24 ROE stood at 12.1%, meeting HLBB’s guidance of around 12% for FY24.

• Including Islamic Banking operations, 3M net interest income (NII) slipped 8.6% YoY. The NIM declined by 34 bps YoY to 1.84% from 2.18% a year ago. QoQ, NIM improved slightly to 1.84% from 1.83% in 4QFY23, which was attributed to prudent asset liability management as well as easing funding cost pressure.

• Total loans and advances accelerated 7.2% YoY, outpacing the industry’s growth. Retail loans rose 7.0% YoY, led by advances for Residential Properties (+7.5% YoY), Transport Vehicles (+9.2% YoY) and Unsecured Lending (+5.3% YoY). Business and Corporate broadened at a healthier pace of 8.0% YoY. SME loans advanced by 10.4% YoY, of which community SME banking ballooned by 12.6% YoY. Loan growth in overseas operations expanded, albeit at a softer pace of 4.4%, led by Singapore (+6.2% YoY). International operations accounted for around 7.3% of HLBB’s total loan portfolio.

• Total deposits advanced by 6.0% YoY. Deposits from Individuals and Business Enterprises increased by 6.0% and 6.6% YoY. By type, CASA deposits contracted by 2.9% YoY, accounting for 29.6% of total deposits. FDs ballooned by 17.2% YoY. Elsewhere, HLBB’s liquidity position remained robust, with the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) at 137% and 119%, respectively.

• Including Islamic Banking operations, the 1QFY24 non-interest income (non-NII) was of little changed YoY, but rose by around 25.2% QoQ. The improved sequential performance was underpinned by higher fee income and trading, investment and FX income of RM76mn in 1QFY24 vs RM27mn in 4QFY23. YoY, Credit card related fees and Wealth management & Bancassurance income broadened by 11.6% and 23.6% YoY, respectively.

• Operating expenses grew at a modest pace of 2.8% to RM556mn from RM541mn in 1QFY23, mostly due to higher personnel costs and admin and general expenses. On the back of negative JAWs, HLBB’s cost-toincome (CTI) ratio broadened to 39.9% vs 36.0% a year ago.

• 1QFY24 net credit cost stood at -3 bps, better than management’s FY24 target of around 10 bps. Other asset quality metrics remained healthy as allowance for loans and other impairments improved to a net writeback amounting to RM51mn from an impairment of RM37mn in 1QFY23. Despite writebacks, HLBB continues to be backed by a cumulative preemptive impairment buffer of RM574mn.

• Headline asset quality remains solid with the total gross impaired loans at RM1,030mn (FY23: RM1,042mn). The gross impaired loans ratio (GIL) was also stable at 0.57% (FY23: 0.57%). The GIL ratio for domestic operations improved by 2 bps YTD to 0.57%, while the GIL ratio for overseas operations rose by 3 bps YTD to 0.46%. By major segments, the GIL for transport vehicles and SMEs weakened by 4 and 5 bps YTD to 0.26% and 1.11%. Meanwhile, the GIL ratio for residential properties improved by 3 bps YTD to 0.42%. Other asset quality indicators, such as loan loss coverage remained fairly stable at 165% (FY23: 169%).

• The capital position remained healthy with a CET1 and Total Capital Ratio of 12.6% and 15.7%.

Impact

• No change to our earnings estimates.

Outlook

• HLBB registered an encouraging start to the new FY, with 1QFY24’s solid performance backed by sustained loan growth, disciplined cost management and healthy asset quality. Anchoring on its solid foundation, HLBB expects to deliver another set of healthy earnings growth in FY24. While management has toned down its guidance for FY24, YTD performance appears to be largely on track despite ongoing external headwinds. To recap, HLBB is looking at 1) a loan growth of 6-7%, 2) a more stable (but lower) NIM of 1.8% to 1.9%, 3) tightly controlled expenses with CTI targeted to be maintained below 40%, 4) resilient asset quality with GIL ratio at <0.7%, and net credit cost of around 10 bps. Taken together, HLBB foresees FY24 ROE to be at around 12%.

Valuation

• We maintain HLBB’s TP at RM21.60. Our valuation is based on an implied PBV of c. 1.36x based on the Gordon Growth Model. Buy reiterated on HLBB.

Source: TA Research - 1 Dec 2023