Investment Highlights

• We maintain BUY on Hong Leong Bank (HLBB) with unchanged fair value of RM22.60/share based on FY24F ROE of 11.2%, leading to a P/BV of 1.2x. No change to our 4-star ESG rating, which we have accorded a 3% premium to the valuation.

• We made no changes to our earnings estimate in view that 1Q24 underlying net profit of RM1bil was within expectations, making up 25.9% of our full-year estimate and 25.7% of consensus.

• 1Q24 net profit of RM1bil grew 4.9% YoY on the back of writebacks in loan impairments allowances of RM51mil (1Q23: net impairment charge of RM38mil), which was partially offset by weaker total income from net interest (NII) and non-interest income (NOII). We gather that the reversal in loan impairments was contributed by BAU recoveries and write backs of RM32mil in forward looking provisions. HLBB’s outstanding pre-emptive provisions remain at RM574mil.

• On QoQ basis, earnings in 1Q24 climbed 19.1%, supported by stronger NI and NOII as well as net writebacks in loan provisions.

• 1Q24 NOII (including income from Islamic Banking) was subdued at RM268mil (-0.2% YoY) with a marginal increase in fee income supported by credit card fees, wealth management and bancassurance income, offset by decline in trading, investment income and FX gains.

• The group’s loans grew 7.2% YoY with a domestic loan growth of 7.5% YoY, outpacing the industry’s 4.3% YoY. Meanwhile, growth in overseas loans moderated to 4.4% YoY, supported largely by expansion in Singapore’s loan book. The focus ahead will be on growing SMEs, commercial and overseas operations’ loans.

• Net interest margin (NIM) improved marginally by 1bps QoQ to 1.84% in 1Q24. This was contributed by active management of funding costs. The interest margin was within management’s guidance of 1.8%-1.9% for FY24F.

• 1Q24 CI ratio rose to 39.9% vs. 36% in 1Q23. This was largely attributed to higher operating expenses (opex) from an increase in personnel costs.

• Share of profits from its associates, BOC and Sichuan Jincheng Consumer Finance Limited, continued to be robust at RM354mil (+33.8% YoY) in 1Q24. It accounted for 28.5% of 1Q24 PBT.

• GIL ratio held up at 0.57% in 1Q24. Net credit cost of -11bps in 1Q24 was lower than management’s guidance of 10bps for FY24F.

Source: AmInvest Research - 1 Dec 2023