Investment Highlights

• We maintain BUY on Hong Leong Bank (HLBB) with an unchanged fair value of RM24.10/share, pegging the stock to FY25 ROE of 10.9% and leading to a P/BV of 1.2x with a 3% premium accorded for a 4-star ESG rating.

• Our FY24F/25F/26F earnings have been tweaked by 2.6%/ 1.2%/-1.1% after adjusting for credit cost, CI ratio assumption and factoring in a lower profit contribution from associates.

• 9MFY24 earnings of RM3.16bil were within expectation accounting for 79.4% of our and 77.

• HLBB’s 9MFY24 net profit grew 7.

• On QoQ basis, the group reported a lower net profit of 4% in 3QFY24 on the back of a decline in total income and share o profits from associates, partially offset by a higher writebac in allowances for loan impairment.

• NOII in 9MFY24 fell by 9.6% YoY to RM831mil, attributed to lower trading, investment and fx income. Fee income grew 9.7% YoY to RM496mil in 9MFY24, supported by increase in income from wealth management, credit card related fees and franchise sales.

• The group’s loans picked up pace to 7.8% YoY in 3QFY24 v .7.5% YoY in 2QFY24 with domestic loans expanding by 8% YoY above the industry’s 6% YoY. Loan growth was supported by expansion in mortgages, auto financing, SME, commercia and overseas loans, largely in Singapore.

• Net interest margin (NIM) continued to improve marginally b 2bps QoQ to 1.87% in 3QFY24, driven by expansion of loan and asset liability management. 9MFY24 NIM fell by 18bps YoY to 1.85%, and this was in line with management’s guidance o 1.8%-1.9% for FY24F.

• CI ratio for 9MFY24 rose to 39.8% due to a negative JAW o 5.9% YoY with growth in OPEX outpacing total income.

• The share of profits from its associates, BOC and Sichuan Jincheng Consumer Finance Limited’s continued to be robus at RM1.19bil (+24.8% YoY). It accounted for 30.8% of th group’s 9MFY24 PBT.

• GIL ratio remained steady at 0.57%. Net credit cost in 9MFY2 was 6bps (9M23: 8bps), lower than management’s guidance o 10bps for FY24. Management alluded to limited loan provision writebacks in 4Q24.

Source: AmInvest Research - 31 May 2024