We maintain our BUY call on Hong Leong Bank (HLBB) with a slightly higher fair value of RM23.20/share from RM23.10/share supported by FY23F ROE of 11.7%, 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.
1Q23 underlying net profit was within expectations, making up 26.5% of our FY23F earnings and 25.8% of consensus projection.
However, we fine-tuned our FY23F/24F earnings by +1.3%/+1.2% to factor in lower net interest margin (NIM) and cost-to-income (CI) ratio assumptions.
The group reported higher core earnings of RM981mil (+14.4% YoY) in 1Q23, contributed by higher net-interest income (NII), lower provisions and improved share of profits from associates.
The group’s loan growth picked up pace to 8.8% YoY in 1Q23 with domestic loans expanded by 7.1% YoY, above the industry’s 6.4% YoY. Meanwhile, overseas loan growth gained traction to 34.3% YoY supported by the expansion of financing in Singapore, Cambodia and Vietnam.
Net interest margin (NIM) increased by 8bps QoQ to 2.18% in 1Q23 contributed by higher loan volume and active asset liability management. Management has revised its NIM guidance for FY23 from >2.10% to 2.14%. Every 25bps hike in OPR will provide an uplift of 4bps to the group’s NIM.
CI ratio for 1Q23 improved marginally to 36% with the group reporting positive JAWs of 2.1%.
The share of profits from its 18% stake in BOC and the remaining 12% in Sichuan Jincheng Consumer Finance Limited’s (both associate companies) continued to be robust at RM265mil (+21.6% YoY). It accounted for 22.3% of the group’s underlying 1Q23 PBT.
GIL ratio remained stable at 0.49%. Net credit cost of 9bps (annualised) in 1Q23 was lower than management’s guidance for FY22 of 10-15bps.
No top-up on pre-emptive provisions in 1Q23. The group’s outstanding pre-emptive impairment buffers remain at RM629mil.
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....