We maintain our BUY call on Hong Leong Bank (HLBB) with unchanged fair value (FV) of RM23.60/share supported by FY23 ROE of 12.0%, leading to a P/BV of 1.4x. Our FV reflects a 3% premium in valuation from a 4-star ESG rating.
We make no changes to our estimates as 9MFY22 core earnings excluding the impact of Cukai Makmur of RM2.57bil (+18% YoY) were within our expectation, making up 77% of our estimate. Meanwhile, it was slightly above consensus estimates, accounting for 81.6% of street numbers.
Total income for 9MFY22 slipped by 0.9% YoY with higher net interest income offset by lower non-interest income due to the decline in trading and investment income.
3QFY22 core earnings came in modestly lower at RM845mil (-2.6% QoQ) due to lower total income (drop in net interest and non-interest income) and higher provisions.
The group’s loans expanded by 6.3% YoY in 3QFY22 (2Q22: 6.7% YoY) with domestic loans growing at 5.3% YoY, ahead of the industry’s 4.6% YoY. Meanwhile, overseas’ loan growth moderated slightly to 25.2% YoY supported by the expansion of financing in Singapore, Cambodia and Vietnam.
Underlying NIM slipped by 4bps QoQ to 2.15% in 3QFY22 contributed by higher funding cost. The group has lengthened the maturity of some FDs to 9–12 months. For 9MFY22, NIM expanded by 4bps YoY to 2.16%. Every 25bps hike in OPR will provide an lift of 4bps to the group’s NIM.
CI ratio for 9MFY22 was stable at 37.5%.
Share of profits from its 18.0% stake in Bank of Chengdu (BOC) and the remaining 12.0% in Sichuan Jincheng Consumer Finance Limited (now both associate companies) continued to be robust at RM722mil (+39.7% YoY). It accounted for 23% of the group’s underlying 9MFY22 PBT.
GIL ratio inched higher to 0.48% driven mainly by upticks in impairments of mortgage and personal loans. For 9MFY22, net credit cost (annualised) of 11bps was close to management’s credit cost guidance of 10bps for FY22.
No top-up in pre-emptive provisions in 3QFY22. YTD, the total pre-emptive provisions raised were RM61mil for 9MFY22. Since FY20, the group’s cumulative pre-emptive impairment buffers amounted to RM873mil.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....