INVESTMENT HIGHLIGHTS

• Net profit for 1HFY17 came within expectations.

• NII grew robustly while NOII continue to be a booster.

• NIM continues to remarkably improve. Coming in at to 2.05% for 1HFY17 from better loan pricing and close control of funding cost.

• Gross loans and deposits momentum intact with LDR below industry’s average.

• Asset quality remains stable with GIL at 0.86% and LLC at 106%.

• Interim dividend of 15 sen.

• No change to our forecasts.

• Maintain BUY with adjusted TP of RM15.50 (from RM15.00), rolling over valuation to FY18. We peg the stock to 1.4x PB multiple, at 1 standard deviation below its 5-year historical average.

Net profit for 1HFY17 within expectations. Hong Leong Bank Berhad 1HFY17 net profit came in within ours and consensus’ expectations coming in at 47.6% and 50.2% of respective full year estimates. The Group posted a normalised net profit growth of +11.8%yoy to RM1.09b due to robust NII and NOII growth, and lower provisions.

NII grew robustly as NIM continues to improve. NII grew +6.0%yoy to RM1.64b on the back of continued NIM improvement. NIM came in +10bps yoy higher to 2.05% in 1HFY17, due to prudent loan pricing and effective funding costs management. This is especially remarkable given the challenging and competitive environment. For 2QFY17, NIM showed 3rd consecutive improvement. We understand that the impact of the OPR cut in CY16 have been fully passed on. For FY17, management is revising its guidance for NIM to be above 2.0%, which we believe is achievable as was with the previous guidance.

NOII continue to be a booster. NOII grew +15.5%yoy to RM640m which was mainly contributed by greater fee income, and trading & investment income. Fee income came in RM252m (vs. RM120m in 1HFY16) from higher wealth management and treasury products. Meanwhile, trading & investment income grew +3.4%yoy to RM305m. NOII ratio was better at 28.1% vs. 26.4% in 1HFY16.

Source: MIDF Research - 22 Feb 2017