Investment Highlights

• We maintain BUY on Hong Leong Financial Group (HLFG) with an unchanged fair value (FV) of RM22.50/share based on SOP valuation and a neutral 3-star ESG rating.

• Our FY24F/25F/26F earnings have been tweaked by +5.8%/- 0.1%/+0.1% to revise our estimates on share of profits from associates.

• 9MFY24 earnings of RM2.39bil were slightly ahead of expectations, making up 81.1% of our full-year estimate and 82.1% of consensus. The variance to our estimate was due to higher-than-expected non-interest income (NOII) and share of profits from associates.

• Net profit grew 7.9% YoY in 9MFY24, contributed by stronger earnings from all divisions (commercial banking, insurance and investment banking).

• HLBB, the commercial banking arm, reported higher PBT of RM3.8bil (+7.4%YoY) in 9MFY24, supported by an increase in share of profits from associates and lower provisions.

• HLBB’s loans grew 7.8% YoY with domestic loan growth of 8% YoY outpacing the industry’s 6% YoY.

• 9MFY24 CI ratio of HLBB rose to 39.8%. 9MFY24 saw a negative JAW of 5.9% YoY with growth in OPEX outpacing total income.

• The banking subsidiary’s asset quality remained resilient with a stable GIL ratio 0.57% while loan loss coverage slipped to 154.4% due to upticks in impaired loans but remained above the industry’s 92.1%.

• Annualised net credit cost of HLBB declined to -6bps in 9MFY24 vs. 8bps in 9MFY23 from writeback in provisions.

• 9MFY24 HLA Holdings’ PBT grew by 2.1% YoY to RM453mil. The improved earnings were driven by higher investment income and share of profits from associates.

• The key insurance subsidiary, HLA’s PBT in 9MFY24 fell 2.3% YoY to RM372mil, attributed to lower insurance services results from higher medical claims, partially offset by an improvement in investment income. New business regular premiums declined by 1.8% YoY in 9MFY24, contributed by a drop in demand for savings plan.
   
• The group’s family takaful operating subsidiary, Hong Leong MSIG Takaful (HLMT) recorded a higher gross contribution by 6.8% YoY from a growth in single premium credit-related takaful products. Meanwhile, gross premium of overseas general insurance subsidiaries, HL Assurance in Singapore/Hong Leong Insurance (Asia) in Hong Kong grew 35% YoY/25%YoY.
   
• The investment banking division under Hong Leong Capital (HLC)’s PBT grew 40.7% YoY to RM73.9mil. This was contributed by the improved earnings of stockbroking from better equity market performance. This more than offset weaker earnings from investment banking (IB) and asset management. IB business was impacted by lower NII due to margin compression and delays in completion of mandated deals. Meanwhile, the asset management’s business was affected by lower income due to the decline in AUM and increase in expenses to strengthen distribution channels.
   
• HLFG’s consolidated CET1 ratio/tier 1/total capital stayed above regulatory limits at 10.5%/11.5%/13.9%.
   
• The stock continues to trade at a low FY25 PE of 6.3x and P/BV of 0.6x.

Source: AmInvest Research - 31 May 2024