Investment Highlights

• We maintain BUY on Hong Leong Bank (HLBB) with a higher fair value of RM24.90/share (RM24.10/share previously), pegging the stock to a higher FY25F ROE of 11.2%, leading to a P/BV of 1.2x with a 3% premium accorded for a 4-star ESG rating.

• Our FY25F/26F earnings have been raised marginally by 2.1%/2.6% to factor in higher NIM and non-interest income (NOII) assumptions.

• The group met all of its key financial targets for FY24. FY24 earnings of RM4.2bil were within expectations, coming in 1% above our forecast and 2% of consensus’.

• HLBB recorded a marginally lower net profit of RM1bil (- 1% QoQ) in 4QFY24 with higher total income and share of profits from associates, partially offset by an increase in OPEX and loan loss provisions.

• For FY24, the group reported higher earnings of 9.9% YoY to RM4.2bil, underpinned by stronger net interest income (NII) and share of profits from associates which offset higher OPEX and allowances for loan impairments.

• NOII in FY24 fell by 2.8% YoY to RM1.1bil, attributed to lower trading, investment and fx income. Fee income grew 13.5% YoY to RM680mil in FY24, supported by increase in income from wealth management, bancassurance, credit card related fees and global market’s franchise sales.

• The group’s loan growth moderated to 7.4% YoY in 4QFY24 vs. 7.8% YoY in 3QFY24 with domestic loans expanding by 7.9% YoY, above industry’s 6.4% YoY. Loan growth was supported by expansion in mortgages, auto financing, SME, commercial and overseas (Singapore & Vietnam) loans.

• Net interest margin (NIM) continued to improve marginally by 2bps QoQ to 1.89% in 4QFY24, driven by expansion of loans and liability management. FY24 NIM fell by 12bps YoY to 1.86%, and this was in line with management’s guidance of 1.8-1.9% for FY24F.

• CI ratio for FY24 rose to 40.5% due to negative JAW of 3.2% YoY with growth in OPEX outpacing total income.

• The share of profits from its associates, BOC and Sichuan Jincheng Consumer Finance Limited, rose QoQ leading to FY24 contribution of RM1.59bil (+23.2% YoY). This accounted for 30.9% of the group’s FY24 PBT.

• GIL ratio inched lower to 0.53%. Net credit cost in FY24 was -6bps (FY23: 6bps), lower than management’s guidance of 10bps for FY24.

• A final dividend of 43 sen/share has been declared. Together with the interim 25 sen/share paid out earlier, FY24 total dividends were 68 sen/share (payout: 34%), higher than 59 sen/share (payout: 32%) in FY23.

Source: AmInvest Research - 30 Aug 2024