9MFY22 net earnings of RM2.38b (+10%) came within expectations. The group continued to deliver stellar loans growth while keeping ROE lofty. In spite of the expansion of its books, the group’s GIL improvement and credit cost readings remains exemplary. No dividend was declared during this quarter, also as expected. Maintain OP and GGM-derived TP of RM22.85. HLBANK is one of our 2QCY22 Top Picks.

9MFY22 within expectations. 9MFY22 net profit of RM2.38b is in line with our/consensus expectations, accounting for 79%/76% of respective full-year estimates. No dividend was declared this quarter, which is also expected as the group typically pays its dividends bi-annually.

YoY, 9MFY22 total income saw a slight decline to RM4.10b (-1%). While NII reported stronger thanks to positive traction in loans growth (+6%), NOII eroded by 33% no thanks to poorer trading and investment income. Our estimated annualised NIMs saw a relatively stable reading. That said, annualised credit cost saw solid improvements of 8bps (-23bps) thanks to sufficient provisions already made, although major write-backs are not expected to be made until CY23. Bank of Chengdu (18%-owned associate) continued to contribute meaningfully (+40%) from better loans and operating performance in its region. All in, 9MFY22 net profit arrived at RM2.38b (+10%).

QoQ, 3QFY22 total income slid by 2% from minor softness in both NII (likely due to some competitive pressures in deposits) and NOII. Credit costs was also higher sequentially at 13bps (+4bps) probably from the expiry of the URUS program. That said, thanks to lower effective taxes, 3QFY22 net earnings of RM784.8m was 6% better QoQ.

Briefing highlights. At the last leg of its financial year, management remains confident that it can close its FY22 strongly, having already established its key operational strategies. The group’s leading loans acquisitions rate (+c.7% YTD) could be attributed to the capabilities of its sales force which management anticipates should deliver better in the future. While there could be some NIMs dilution arising from its aggressive growth, management opines that margins are not likely to be compromised at least for the rest of FY22. With the earlier-than-expected OPR hike, a +4bps NIM improvement should be seen for the most part in FY23. With regards to its repayment assistance mix, the group rests at RM8.2b as of Apr 2022 (5% of total books, vs. Feb 2022: RM10b) and should not pose meaningful asset quality concerns post- graduation. Keeping their credit cost guidance at only 10 bps, the group is also likely to overperform its GIL target of <0.8% with 9MFY22 only coming in at 0.5%. Meanwhile, Bank of Chengdu (BOCD) will continue to benefit from a healthy business landscape but will still be prudent in taking on new accounts.

Post results, our FY23E earnings were tweaked by +1% on model updates.

Maintain OUTPERFORM and TP of RM22.85. Our TP is based on an unchanged GGM-derived CY23E PBV of 1.34x (0.5SD above mean). We believe HLBANK is suitable for defensive-oriented investors. The group’s better than pre-Covid GIL ratio provides the group solid buffers if we were to expect macro factors to gradually worsen. In addition to a leading ROE proposition, the group’s investment in BOCD provides exposure to the high growth economy in China, poised to offer c.20% earnings growth in the near term. HLBANK is one of our Top Picks for 2QCY22.

Source: Kenanga Research - 31 May 2022