HLB reported a robust set of operating results in 1HFY21, with net operating income up 12% yoy while pre-provision profit was up 22.3% yoy. 1HFY21 fund-based income reported a 15.7% yoy growth despite the rate cuts, as HLB benefited from the repricing down of deposit rates, a decrease in fixed deposits (-4.8% yoy) and robust CASA growth of 21.5% yoy (CASA ratio at 30%). As a result, NIM expanded by 5bps yoy to 2.05% in 1HFY21. Non-interest income grew 3% yoy, driven by Treasury gains, wealth management and credit card fees. Meanwhile, Bank of Chengdu’s contribution (19.4% of 1HFY21 pre-tax profit) was up 8% yoy.
HLB’s management has raised its FY21 NCC target to 30bps (already pencilled into our forecasts) from its previous guidance of 15-20bps, implying a lower 2HFY20 NCC of 14bps (annualized). As a result, 2QFY21’s ECL allowances rose substantially by 46bps qoq to an annualized NCC of 64.6bps (1HFY21 NCC stood at an annualized 46bps). Similar to what other banking peers have communicated, the pace of new applications for financial relief and assistance have moderated in Jan-Feb 21 compared to 4Q20. For HLB, the outstanding loans under the payment relief assistance plans have declined from 8% (as at 16 Nov20) to 7% (as at 31 Jan21).
We upgrade our rating from HOLD to BUY (largely on valuation grounds), though our 12- month PT is unchanged at RM20.30 (based on a 1.47x P/BV on the CY21E BVPS) underpinned by a CY21E ROE at 9.74% and cost of equity of 7.6%. Our earnings forecasts for FY21E/22E/23E remain unchanged, while underlying assumptions include: loan growth of 4% yoy, CIR of 39-40%, NIM of 2.02-2.07%. Downside risks: interest rate cuts; higher NPL rates from the targeted assistance program.
Source: Affin Hwang Research - 1 Mar 2021
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HLBANKCreated by kltrader | Jan 03, 2023
Created by kltrader | Sep 30, 2022
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2021-03-15 15:36