Investment Highlights

• We maintain our BUY call on Hong Leong Bank (HLBB) with unchanged fair value of RM21.10/share. This is based on FY22 ROE of 10.9%, leading to P/BV of 1.3x.

• HLBB’s 1Q22 core earnings came in at RM890mil (+22.1% YoY) with stronger total income, lower operating expenses (opex) and provisions.

• Core earnings after stripping mod loss net of tax of RM32mil from the Pemulih moratorium were within expectations, making up 26.9% and 28.3% of our and consensus estimate respectively.

• The group's loan growth decelerated to 5.2% YoY (4Q21: 6.8% YoY in 4Q21). Loan expansion was supported by mortgages (residential property financing), SME and business banking loans.

• Domestic loans eased to 4.3% YoY (4Q21: 6.1% YoY) but remained ahead of the industry which grew 2.9% YoY. Meanwhile, overseas’ loan growth picked up pace to 21.2% YoY (4Q21: 18.9% YoY).

• Underlying NIM in 1Q22 was stable QoQ at 2.21%.

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

• 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 (both associate companies) continued to be robust at RM218mil (+30.5% YoY). It accounted for 20.9% of the group’s underlying 1Q22 PBT.

• GIL ratio inched higher to 0.48% due to upticks in impairments of HP and mortgage loans. For 1Q22, net credit cost of 0.13% was within management’s credit cost guidance of 0.20% for FY22. An additional pre-emptive provisions of only RM23mil was set aside in the quarter. This brought the total pre-emptive provisions to RM835mil.

• Our net profit for FY22 has been lowered by 8.5% to account for additional taxes in the form of the prosperity tax of RM283mil. As this is a one-off additional tax, our core net profit for FY22 of RM3.3bil is unchanged.

Source: AmInvest Research - 30 Nov 2021