We maintain our BUY call on Hong Leong Bank (HLBB) with a slightly lower fair value to RM23.20/share from RM23.60/share supported by FY23F ROE of 11.9%, leading to a P/BV of 1.4x. No change to our 4-star ESG rating which we have accorded a 3% premium to our valuation.
We fine-tune our FY23F/24F earnings estimates by -2%/-3% after increasing our credit cost assumption to 10bps/8bps. FY22 underlying net profit exceeded expectations, making up 108% of our estimate and 113% of consensus. The variance to our estimate was due to lower opex and better-than-expected profit contribution from BOC.
FY22 core earnings, excluding the impact of Cukai Makmur of RM3.6bil, grew 26% YoY underpinned by higher total income, controlled operating expenses, lower provisions and higher profit contribution from its associate, Bank of Chengdu (BOC).
The group’s loans expanded by 8% YoY in 4QFY22 with domestic loans growing at 6.7% YoY ahead of the industry’s 5.6% YoY. Meanwhile, overseas loan growth picked up pace to 27% YoY supported by the expansion of financing in Singapore, Cambodia and Vietnam.
Underlying NIM slipped by 5bps QoQ to 2.1% in 4QFY22, contributed by higher funding cost as the group built up longer term FDs. FY22 NIM, excluding mod loss, expanded by 2bps YoY to 2.16%. Every 25bps hike in OPR will provide an uplift of 4bps to the group’s NIM.
CI ratio for FY22 improved marginally to 37.5% due to higher total income.
Share of profits from its 18% stake in BOC and the remaining 12% in Sichuan Jincheng Consumer Finance (both associate companies) continued to be robust at RM1bil (+40% YoY). It accounted for 24% of the group’s underlying FY22 PBT.
GIL ratio remained stable at 0.49%. FY22 net credit cost of 10bps was in line with management’s guidance.
The group reported higher core earnings of RM1bil (+22% QoQ) in 4QFY22 contributed by higher non-interest income (NOII) and lower provisions.
No top-up in pre-emptive provisions in 4QFY22. The group’s preemptive impairment buffers totalled RM873mil. In 4QFY22, HLBB has allocated RM244mil of it to specific retail and business banking loan portfolios. This leaves an outstanding balance of pre-emptive impairment buffer of RM629mil.
HLBB declared a final dividend of 37 sen/share. This brings the total dividends for FY22 to 55 sen/share (payout: 35%). The stock is trading at 1.3x FY23F PB/V, which is below its 5-year historical average of 1.4x.
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....