Investment Highlights

• We maintain our BUY call on Hong Leong Bank (HLBB) with a higher fair value of RM22.90/share from RM21.10/share after rolling over our valuation to FY23. We peg the stock to a P/BV of 1.4x based on FY23 ROE of 11.8%.

• Our FY22/23/24 earnings have been raised by 0.6%/4.8%4.4% to account for lower credit cost and higher NIM assumptions.

• 2Q22 core earnings came in modestly higher at RM868mil (+1.2% YoY) with lower provisions and higher share of profits from associates partially offset by slight decline in total income.

• 6M22 core earnings of RM1.7bil (+23.3% YoY) were within expectations, making up 52.1% of our estimate. Meanwhile, it was slightly ahead of consensus estimate, accounting for 56.8% of street numbers.

• The group’s loans expanded by 6.7% YoY with domestic loans growing at 5.7% YoY, ahead of the industry’s 4.5% YoY. Meanwhile, overseas’ loan growth picked up pace to 25.7% YoY.

• Underlying NIM in 1Q22 rose by 6bps QoQ at 2.19% in 2Q22. For 6M22, NIM expanded by 12bps YoY to 2.20%.

• CI ratio for 6M22 improved to 37.1% with positive jaws of 1.3% 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 RM469mil (+40.1% YoY). It accounted for 22.1% of the group’s underlying 6M22 PBT.

• GIL ratio inched lower to 0.46%, attributed to lower impairments of HP, mortgage and personal loans. 6M22 net credit cost of 0.10% was within management’s credit cost guidance of 0.20% for FY22. An additional pre-emptive provision of RM38mil was set aside during the quarter. This brought the total pre-emptive provisions to RM61mil for 6M22 and RM873mil since FY20.

• An interim dividend of 18 sen/share has been declared (payout: 21.4%) based on core EPS.

Source: AmInvest Research - 1 Mar 2022