• Still BUY and MYR23.20 TP, 22% upside and c.3% FY24F (Jun) yield. 1QFY24 results met expectations. Relative to its unchanged FY24 targets, Hong Leong Bank only undershot its CASA mix target of >30%. Results standouts: Slightly better NIM, improved Non-II and cost efficiency and stable asset quality. We continue to like the stock for its above-industry loan growth, solid asset quality and liquid balance sheet, where management sees scope for further liquidity management. This will be positive for NIM.

• 1QFY24 results were in line, with net profit of MYR1.0bn (+19% QoQ, +5% YoY) forming 25-26% of our and consensus FY24F. QoQ, most line item trends were positive: i) Operating income rose 7% QoQ on higher Non-II (+25% QoQ on higher fees and trading, investment and forex income) and NII (+3% QoQ); ii) lower opex (-5% QoQ) as 4QFY23 was impacted by top up provisions for the new collective agreement. CIR improved to 39.9% from 45.1% in 4QFY23; iii) net loan impairment writeback as asset quality was stable; and iv) higher associate contribution (+5% QoQ).

• NIM inched up 1bps QoQ, which we estimate was due to lower funding cost. Heading into the year-end seasonal deposit competition, HLBB has seen deposit pricing tick up by 10-15bps in November as compared to October. However, pricing rationality is much better than a year ago and HLBB does not think the keener competition will go deep into 1QCY24. Also, management said it will be willing to allow its LDR to rise further towards that for the industry (of 87.6 vs 1QFY24 LDR of 85.2%) for a more optimal asset-liability management. It estimates this could enhance NIM by 1-2bps. All-in, management appears optimistic on its NIM trajectory.

• A muted start for loan growth, which was flat QoQ (+7% YoY). This was mainly due to corporate loan repayments, which management said was trade-related. Also, trade loan margin was too fine and as such, the loans that rolled off were not replaced. Otherwise, SME loans grew 4% while retail was up 6% (figures annualised). Meanwhile, deposits contracted by 1% QoQ (+8% YoY) with CASA down 5% QoQ and short term placements declining 13% QoQ. The focus remains on sticky retail deposits and HLBB is willing to shed its more price-sensitive global market deposits as it optimises its LDR levels.

• Asset quality stable with GIL flat QoQ (+23% YoY) thanks to a low impaired loan formation rate of 25bps. As such, its GIL and LLC ratios were broadly stable QoQ at 0.57% and 165% vs FY23: 0.57% and 169%. Overlay buffers of MYR574m were unchanged.

• Bank of Chengdu highlights. 9M23 net profit rose 21% YoY on 26% YoY loan growth while GIL was stable at 0.7% (LLC: 516%). ROE was 18%. It is a Top-10 city commercial bank in terms of assets but ranked second on ROA. It does not have exposure to distressed property developers as it had stayed prudent in its borrower and geographic selections.

• Forecasts/TP kept. Our MYR23.20 TP has a 0% ESG premium/discount.

Source: RHB Securities Research - 1 Dec 2023