Investment Highlights

• 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.

Source: AmInvest Research - 31 May 2022