Investment Highlights

• We maintain BUY on Hong Leong Financial Group (HLFG) wi a higher fair value (FV) of RM23.20/share (RM22.50/sha previously) based on a revised SOP valuation and a neutral star ESG rating.

• Our FY25F/26F earnings have been tweaked by +8.6%/+4.6 due to increased non-interest income estimates.

• FY24 earnings of RM3.2bil were within expectations, coming 2.5% above our estimate. Nevertheless, it was slightly ahead consensus at 6.8% above street’s forecast.

• HLFG recorded a lower 4QFY24 net profit of RM806mil (-1.5 QoQ), attributed to higher OPEX which offset a mode increase in net income and an increase in share of profits fro associates.

• FY24 net profit grew 11% YoY, contributed by strong earnings from the commercial banking business under HLB higher fee income from investment bank and ass management business coupled with an increase in share profits from associate, Bank of Chengdu (BOC) and MSIG.

• HLBB, the commercial banking arm, reported higher PBT RM5.1bil (+11%YoY) in FY24, supported by an increase in n interest income, share of profits from associate, BOC an lower provisions.

• HLBB’s loans grew 7.3% YoY with domestic loan growth 7.9% YoY outpacing the industry’s 6.4% YoY.

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

• The banking subsidiary’s asset quality remained resilient wi stable GIL ratio of 0.53% and loan loss coverage slipping 155%.

• Net credit cost in FY24 was -6bps, better than 6bps in FY23.

• FY24 HLA Holdings’ PBT grew moderately by 2.2% YoY RM511mil, driven by higher investment income of its ke insurance subsidiary, HLA and an increase in share of profi from its associate, MSIG.

• Earnings from life insurance and family takaful businesse rose due to higher investment income with an increase general insurance business profit, attributed to improve share of contributions from MSIG and its overseas operation in Singapore and Hong Kong.
   
• Growth in gross premium for life insurance and family takaful was flattish at -0.9% YoY, attributed to lower growth in premiums from new business. Regular/single premiums accounted for 87%/13% of the life insurance and family takaful business’ total gross premiums. The embedded value for HLA rose to RM4.27bil (+12.9% YoY).
   
• The investment banking division under Hong Leong Capital’s (HLC) PBT surged 98.4% YoY to RM98mil. This was contributed by improved earnings of stock broking, asset management and investment banking. Market share for stock broking rose to 4.08% compared to 3.85% in the previous financial year. Meanwhile, the asset management’s business AUM declined to RM10.9bil in FY24 vs. RM11.6bil in FY23.
   
• HLFG’s consolidated CET1 ratio/tier 1/total capital stayed above regulatory limits at 11.5%/12.4%/14.3%.
   
• The group declared a final dividend of 36 sen/share, bringing total dividends for FY24 to 54 sen/share (payout: 19.2%)
   
• The stock continues to trade at a low FY25F PE of 6.1x and P/BV of 0.6x.

Source: AmInvest Research - 30 Aug 2024