Investment Highlights

• We maintain our BUY call on Hong Leong Bank (HLBB) with a revised fair value of RM24.10/share from RM23.20/share previously. Our BV/share estimate for FY24F has been raised after incorporating the reported financial numbers of FY23. Our FV is pegged to FY24F ROE of 11.4%, leading to a P/BV of 1.3x. No change to our 4-star ESG rating, which we have accorded a 3% premium to the valuation.

• 12M23 underlying net profit was within expectations, coming in 1% below both our and consensus estimates. However, we tweaked FY24F/25F earnings lower by 4.3%/8.8% to factor in a lower net interest margin (NIM) assumption.

• In 4Q23, the group reported a lower net profit of RM865mil (- 7% QoQ) on the back of a decline in non-interest income (NOII) and higher operating expenses.

• In 12M23, underlying earnings of RM3.8bil rose by 6.1% YoY, supported by higher non-interest income (NOII), lower provisions and stronger share of profit from associates.

• The stronger NOII in 12M23 was contributed largely by higher trading, investment income and FX gains of RM418mil. Fee income was marginally lower by 2% YoY due to a decline in wealth and bancassurance income despite recording increased credit card fees.

• The group’s loan growth picked up pace to 8% YoY in 4Q23 (3Q23: 7.2% YoY) with domestic loans expanding by 7.2% YoY, above the industry’s 4.4% YoY. Meanwhile, overseas loan growth moderated to 19% YoY, supported by the expansion of financing in Singapore, Cambodia and Vietnam.

• Net interest margin (NIM) improved marginally by 1bps QoQ to 1.83% in 4Q23. 12M23 NIM of 1.98% fell by 16bps YoY, contributed by higher funding cost from keen deposit competition and the impact of higher SRR cost of 2bps-3bps. Nevertheless, the pressure on NIM has stabilised and is not likely to be a further drag on net interest income (NII).

• CI Ratio for 12M23 Rose to 39.3% Due to a Negative JAW of 4.8% YoY.

• The share of profits from its associates, BOC and Sichuan Jincheng Consumer Finance Limited continued to be robust at RM1.3bil (+25.1% YoY). It accounted for 28% of the group’s underlying 12M23 PBT.

• Slight uptick in GIL ratio to 0.57% in 4Q23 vs. 0.52% in 3Q23. Net credit cost in 12M23 of 6bps was within management’s guidance of 10bps for FY23.

• A final dividend of 38 sen/share has been declared. This brings full FY23 dividends to 59 sen/share, which equates to a payout of 32% lower than 35% in FY22.

Source: AmInvest Research - 1 Sept 2023