Hong Leong Bank’s 9MFY17 net profit was in line with the street’s and Affin’s forecasts. HLB saw a normalized earnings growth of 12.6% yoy underpinned by steady operations, which are being reflected in NIM improvement (+14bps yoy to 2.08%), loan growth of 3.9% yoy, ample liquidity (LCR > 130%; LDR 81%) and sound asset quality. A significant 160% qoq rebound in BOCD’s profit contribution was another key driver in 3QFY17. Maintain BUY, PT revised up to RM15.68 (based on 1.29x CY18E P/BV) from RM15.20.
HLB’s 9MFY17 net profit saw a normalized growth of 12.6% yoy, driven by: i) stronger fund-based income growth (+8.3% yoy); ii) overall lower impaired loan allowances (net credit charge down to 11bps for 9MFY17 vs. 9MFY16 (15bps); and iii) normalization in Bank of Chengdu’s (BOCD) earnings contribution. The annualized 9MFY17 net profit was within Affin’s and the street’s expectations. Nonetheless, on a qoq basis, 3QFY17 pretax profit was flat as operating income moderated by 4.7% due to a dip in non-interest income. HLB’s bottomline was, however, propped up by a significant rebound of 184% qoq in BOCD’s earnings contribution.
HLB’s 3QFY17 NIM continued improving (+6bps qoq to 2.14%) as a result of the reduction in funding pressure, while 9MFY17 NIM saw a 14bps yoy jump to 2.08%, partially aided by loan repricing initiatives. HLB continued to see a reduction in pricey NIDs while CASA growth remained robust, +8.8% yoy. Initiatives to boost low-cost deposits are bearing fruit through digital initiatives and transactional banking (consumer and SMEs).
We Maintain Our BUY Rating on HLB and Revise Our Price Target From RM15.20 (at 1.33x CY17E P/BV) to RM15.68 (at 1.29x CY18E P/BV, based on CY18E ROE of 10.2%). HLB’s earnings continue to be sustained by domestic operations as well as those in Singapore, as the group leverages on healthcare financing (aiming to grow the portfolio to RM1bn by 2018) and digital banking with consumers and SMEs, and targets bancassurance fees from wealth management activities while benefitting from its exposure to BOCD. Downside risks: i) NIM pressure; ii) assetquality issues; iii) weaker-than-expected loan growth
Source: Affin Hwang Research - 30 May 2017
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