INVESTMENT HIGHLIGHTS

• Net profit for 1QFY17 came within expectations.

• PPOP grew +8.0%yoy as income growth outpaced OPEX growth.

• NOII was kicker for income, growing at +7.2%yoy.

• NII grew +5.4% on surprised NIM improvement to 2.01% from better loan pricing and close control of funding cost.

• Gross loans and deposits rose +4.0%yoy. LDR at 81.0% giving the Group space to increase loans growth should it need to.

• Asset quality remains stable with GIL at 0.84% and LLC at 113%.

• No change to our forecasts.

• Upgrade to BUY with revised TP of RM15.00 (from RM14.10) pegging the stock to 1.4x PB multiple, which is 1 standard deviation below its 5-year historical average. Net profit within expectation. The 1QFY17 Hong Leong Bank Berhad net profit came in within expectations whereby it was 23.6% and 25.1% of ours and consensus’ full year estimates. The Group posted a net profit growth of +7.9%yoy to RM542.6m on the back of higher PPOP.

Solid PPOP growth, as CI ratio improved. PPOP was +8.0%yoy higher at RM605.6m. The growth was due to total income growth outpacing growth of OPEX. For 1QFY17, OPEX grew +6.0%yoy to RM490.7m due to increased personnel cost (+6.7%yoy to RM275.9m) and establishment cost (+11.5%yoy to RM119.8m) which was from higher IT expenses (+35.8%yoy to RM38.0m). However, despite the growth in OPEX, CI ratio improved to 44.8% due to higher total income. Comparatively, CI ratio was 45.2% in 1QFY16.

NOII kicker for total income growth. The Group’s 1QFY17 total income came in +7.2%yoy higher at RM1.1b. This was due to growth in both NII and NOII. Its NOII grew +12.2%yoy to RM294.8m which was mainly contributed by greater trading and investment income from dividends and gains of sale of financial assets. Combined it registered an income of RM107.6m vs. RM52.0m in 1QFY17. As a result, NOII contribution was better at 26.9% vs. 25.7% in 1QFY17

Source: MIDF Research - 23 Nov 2016