Investment Highlights

• We maintain our BUY call om Hong Leong Bank (HLBB) with a revised fair value of RM19.30/share from RM16.80/share after rolling forward our valuation to FY22. This is based on a higher FY22 ROE of 10.0%, leading to a P/BV of 1.2x. No changes to our estimates.

• 1QFY21 net profit of RM729mil, grew 5.9% YoY with a strong total income growth of 11.0% YoY partially offset by conservative provisions of RM238mil. Earnings were within expectations, making up 26.6% and 26.9% of our and consensus estimate respectively.

• Loan growth accelerated to 6.8% YoY (4QFY20: 6.1% YoY). Domestic loans growth of 6.8% YoY outpaced the industry’s 4.4% YoY, supported by mortgages (residential property), SMEs, commercial banking and expansion of overseas’ markets loans.

• Underlying NIM in 1QFY21 rose by 8bps QoQ to 2.00% due to lower funding cost from the repricing of deposits after the recent OPR cuts. There is still room for upside in NIM from repricing of liabilities ahead.

• HLBB’s NOII in 1Q21 was decent, underpinned by a strong treasury income (disposal gains of FVOCI securities). FVOCI reserves at RM578mil stayed strong for further monetization of gain in securities when the opportunity arises.

• CI ratio for 1QFY21 was 38.6% with opex staying flat.

• 1QFY21 share of profits from its 18.0% stake in Bank of Chengdu (BOC) and the remaining 12.0% in Sichuan Jincheng Consumer Finance Limited’s (now both associate companies) continued to be strong at RM167mil (15.3% YoY). It accounted for 18.8% of the group’s underlying 1QFY21 PBT.

• The group’s GIL ratio declined to a low of 0.48% (4QFY20: 0.61%). Credit cost rose to 0.28% in 1QFY21 (1Q20: -0.03%) with further top-up in provisions.

• 8% of the group’s loans under assistance. Its payment relief assistance programme (PRAP) of RM11.8bil has been extended to 44,000 customers (78% to retail and 22% to SME and corporate borrowers).

Source: AmInvest Research - 30 Nov 2020