Investment Highlights

• We maintain our BUY call on Hong Leong Bank (HLBB) with a higher fair value of RM20.30/share (previously: RM19.30/share). This is based on a higher FY22 ROE of 10.6% vs. 10.0% previously, leading to a P/BV of 1.3x. We raise our FY21/22/23 earnings by 4.1%/6.8%/8.9% to reflect higher NIM estimates.

• 2QFY21 net profit fell 8.0% QoQ to RM671mil despite a strong top line as the group continued to build up pre-emptive provision buffers.

• 6MFY21 earnings were RM1.4bil (+0.7% YoY) with stronger NII and NOII partially offset by higher loan impairment allowances. Cumulative earnings were within expectations, making up 50.4% and 50.8% of our and consensus estimate respectively.

• HLBB recorded a strong loan growth of 6.2% YoY (1QFY21: 6.8% YoY). Domestic loans grew 6.4% YoY and continued to outpace the industry’s growth of 3.4%YoY. supported by mortgages SME and commercial banking loans.

• Underlying NIM in 2QFY21 rose by 15bps QoQ to 2.15%, attributed to lower funding cost. For 6MFY21, NIM rose 5bps YoY to 2.08%, attributed to a reprising of deposits which reduced the group’s cost of funds.

• HLBB’s 6MFY21 NOII in 1Q21 was higher YoY, supported by treasury income (disposal gains of FVOCI securities) and stronger wealth management income.

• CI ratio for 6MFY21 was lower at 37.6% with tight control of opex and higher income.

• 6MFY21 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 robust at RM335mil (+7.2% YoY). It accounted for 19.6% of the group’s underlying 6MFY21 PBT.

• The group’s GIL ratio rose slightly to 0.54% (1QFY21: 0.48%). Annualised credit cost rose to 0.46% contributed by the booking in of RM299mil pre-emptive provisions which comprised of RM89mil from adjustments to macroeconomic variables.

• The group declared an interim dividend of 14.78 sen/share for 6MFY21 (payout: 21.6%)

Source: AmInvest Research - 1 Mar 2021