Investment Highlights

• We maintain BUY on Hong Leong Financial Group (HLFG) with a revised fair value of RM20.50/share (previously: RM20.60/share) based on lower SOP valuation.

• HLFG reported a higher core net profit of RM672mil (+14.6% YoY) in 1Q22. Its higher net interest income (NII) was partially offset by a slowdown in Islamic banking and non-interest income (NOII).

• Core earnings were within our expectation, accounting for 27.3% of our and 28.2% of consensus estimates.

• Its key subsidiary, HLBB, reported a strong PBT of RM1.04bil (+17.1% YoY) in 1Q22, contributed by higher total income, lower opex and provisions while the earnings contribution from its associate Bank of Chengdu remained robust.

• HLBB’s loans moderated to 5.2% YoY with domestic loan growth of 4.3% YoY, outpacing the industry’s 2.9% YoY.

• HLBB’s CI ratio for 1Q22 improved to 36.8% with a positive JAW of 5.0% YoY.

• The banking subsidiary’s asset quality remained sound with GIL ratio of 0.48% while loan loss cover of 239.0% was significantly above the industry’s 120.5%. Credit cost of HLBB stood at a low 0.13% in 1Q22.

• HLA Holdings (HLAH) recorded a lower net profit after tax of RM91mil (-9.0% YoY) for 1Q22. Excluding the one-off tax credit item in 1Q21, net profit after tax would have been higher by 63.2% YoY.

• For 1Q22, key insurance subsidiary HLA’s gross premiums grew by 1.2% YoY while its new business regular premiums (NBRP) declined by 33.6% YoY due to lockdowns imposed to manage the new wave of Covid- 19 which impacted selling activities for insurance.

• The investment banking division under Hong Leong Capital (HLC) reported a lower PBT of RM29mil (-36.7% YoY) for 1Q22 driven by weaker contributions from investment banking and stockbroking business.

• Meanwhile, the fund and unit trust management business’ PBT rose by RM2.3mil or 40.0% YoY to RM8.0mil with a higher net contribution from management fee income.

• HLFG’s consolidated CET1 ratio, tier 1 and total capital were 11.40%, 12.33% and 15.22% in 1Q22 respectively.

• Our net profit for FY22 has been lowered by 8.5% to account for additional taxes from the prosperity tax of RM210mil. As this is a one-off additional tax, our core net profit for FY22 of RM2.45bil is unchanged.

Source: AmInvest Research - 30 Nov 2021