Investment Highlights

• We maintain our BUY call on Hong Leong Bank (HLBB) with a revised fair value of RM23.50/share from RM23.20/share after rolling forward our valuation to FY24F. Our revised valuation is supported by FY24F ROE of 12.5%, leading to a P/BV of 1.4x. No change to our 4-star ESG rating, which we have accorded a 3% premium to the valuation.

• We fine-tuned our FY23F/24F/25F earnings by +6%/+7.2%/+7.6% to factor in lower net interest margin (NIM) and higher share of profit from associates.

• 6MFY23 underlying net profit was within expectations, making up 54% of our FY23F earnings and 52% of consensus projection.

• For 6MFY23, normalised earnings came in at RM2bil (+17.2 %YoY), supported by higher interest and non-interest income as well as lower loan loss allowances.

• The group reported higher core earnings of RM1bil (+6.2% QoQ) in 2QFY23, contributed by lower provisions and higher share of profit from associates.

• The group’s loan growth slowed down to 7.6% YoY in 2QFY23 (1Q23: 8.8% YoY) with domestic loans expanding by 6.5% YoY, above the industry’s 5.7% YoY. Meanwhile, overseas’ loan growth moderated to 24.4% YoY, supported by the expansion of financing in Singapore, Cambodia and Vietnam.

• Net interest margin (NIM) slipped by 9bps QoQ to 2.09% in 2QFY23 contributed by higher funding cost from keen deposit competition and the impact of higher SRR cost of 2-3bps. 6MFY23 NIM of 2.14% was in line with management guidance.
   
• CI Ratio for 6MFY23 Improved Marginally to 36.4% With the Group Reporting Positive JAWs of 2%.
   
• The share of associate profits from its 18% stake in BOC and the remaining 12% in Sichuan Jincheng Consumer Finance Limited continued to be robust at RM638mil (+36% YoY). It accounted for 25.8% of the group’s underlying 6MFY23 PBT.

• GIL ratio remained stable at 0.49%. Net credit cost of 7bps (annualised) in 6MFY23 was lower than management’s guidance of 10bps for FY23F.

• No top-up on pre-emptive provisions in 2QFY23. The group’s outstanding pre-emptive impairment buffers remain at RM629mil.

• An interim dividend of 21 sen/share has been declared (payout of 21.3%) in 6MFY23. This was higher than 18 sen/share in 6MFY22.

Source: AmInvest Research - 1 Mar 2023