• Maintain BUY, new MYR26.60 TP from MYR23.60, 25% upside with c.4% FY25F (Jun) yield. Hong Leong Bank’s FY24 results came in just ahead of our estimates, thanks to its net loan impairment writeback and better-than- expected associate contributions. The bank met or exceeded all of its FY24 targets, and unveiled FY25F targets remain largely optimistic, alongside an improved appetite for dividend payouts. These, combined with its already solid fundamentals, compels us to remain upbeat on the counter.

• Results review. 4QFY24 net profit of MYR1.03bn (+20% YoY, -1% QoQ) brought the full year sum to MYR4.20bn (+13% YoY) – forming 104% and 102% of our and Street full-year estimates. For the full year, the 12bps YoY NIM compression was offset by the 7% loan growth that lifted NII by 3%, while non-II slid 2% from lower treasury and investment income. Opex rose 5% on greater personnel expense, but a net impairment writeback of MYR114m (vs net charge in FY23) led to a 6% growth in pre-associate profits. For 4Q, PIOP dipped 1% QoQ (+19% YoY) mainly from higher opex (+9% QoQ, +7% YoY), but was mitigated by a greater net writeback of MYR31m (3QFY24: MYR26m).

• A final DPS of 43 sen was declared, bringing the full-year total to 68 sen (34% payout ratio), ahead of our forecasted 62 sen. Management aims to progressively grow its payout ratio to 40% over time, especially as it has now surpassed the 13% CET-1 ratio mark.

• FY25F guidance points to continued optimism. From a NIM of 1.86% in FY24, HLBK provided a guidance of 1.85-1.95% for FY25. It sees some yield pressure from the increased competition for loans, but it has earmarked several initiatives to optimise funding costs. Potential cuts in US interest rates could also provide some uplift to NIM, with a +1bps full-year impact expected for every 25bps cut in the Federal Funds Rate. It also hopes to keep loan growth above industry average at 6-7%, and ROE at a strong c.12%.

• Potential for overlay write-backs in 2HFY25. Despite four consecutive quarters of net loan impairment write-backs, the group has held on to its MYR574m in management overlays. It is currently recalibrating its provisioning models, and could reverse some of the overlays in 2HFY25 pending clearance from auditors and regulators. A FY25F credit cost guidance of <10bps was provided, but we think this will likely be bettered, given the stability in its asset quality (GIL ratio was down 4bps QoQ and YoY).

• Bank of Chengdu (BOCD) notes. BOCD’s 1H24 (Dec) net profit surged 11% YoY, driven by 23% YoY loan growth. Asset quality remains sound, with the GIL ratio easing 6bps YoY to 0.66%, while LLC stood at almost 500%. HLBK remains positive on BOCD, but as the associate’s earnings base gets bigger, its domestic (and ASEAN) operations will need to keep pace.

• FY25-26F earnings lifted by 3% and 6%. We also raise our TP to MYR26.60 (which includes a 2% ESG premium) as a result.

Source: RHB Research - 30 Aug 2024