AmInvest Research Reports

Hong Leong Bank - Strong topline growth with positive JAWs

Publish date: Wed, 30 Nov 2022, 09:55 AM
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Investment Highlights

  • 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.


Source: AmInvest Research - 30 Nov 2022

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