Review

• Reporting an FY23 net profit of RM3,818mn, HLBB’s results came within expectations. Translating to a 16.1% YoY increase, the stronger set of results were mostly underpinned by higher income, lower allowances, along with more robust contributions from associates (+25.1% YoY). FY23 ROE stood at 11.8%, almost meeting HLBB’s guidance of >12% for FY23.

• The board has declared a final dividend of 38 sen per share, bringing the total dividend to 59 sen per share for FY23 and translating to a payout of 32%.

• Including Islamic Banking operations, 12M net interest income (NII) slipped 1.4% YoY due to elevated funding cost pressure. The NIM declined by 16 bps YoY to 1.98% from 2.14% in FY22. QoQ, NIM improved slightly to 1.83% from 1.82% in 3QFY23, attributed to prudent asset liability management.

• Total loans and advances accelerated 8.0% YoY, outpacing the industry’s growth. Retail loans rose 7.1% YoY, led by advances for Residential Properties (+8.1% YoY), Transport Vehicles (+10.9% YoY) and Unsecured Lending (+5.1% YoY). Business and Corporate broadened at a healthier pace of 7.2% YoY. SME loans advanced by 9.7% YoY, of which community SME banking ballooned by 13.2% YoY. Loan growth in overseas operations expanded, led by Singapore (+22.9% YoY), followed by Vietnam (+18.3% YoY) and Cambodia (+5.6% YoY). International operations accounted for around 7.7% of HLBB’s total loan portfolio.

• Total deposits advanced by 7.3% YoY. Deposits from Individuals and Business Enterprises increased by 5.2% and 8.2% YoY. By type, CASA deposits contracted by 1.4% YoY, accounting for 30.8% of total deposits. FDs ballooned by 19.6% YoY. Elsewhere, HLBB’s liquidity position remained robust, with the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) at 136.4% and 122%, respectively.

• Including Islamic Banking operations, the FY23 non-interest income (nonNII) rose by around 15.7% YoY to RM1,133mn from RM979mn a year ago due to higher card fees, and trading, investment and FX income of RM418mn (FY22: RM307mn). On the other hand, fee income eased by 1.8% YoY to RM599mn (FY22: RM610mn) as higher Credit Card related fees (+8.9% YoY) were offset by a 12.6% YoY decline in Wealth Management income.

• Operating expenses grew 6.4% to RM2,233mn from RM2,098mn in FY22, mostly due to higher personnel costs, establishment, marketing and admin and general expenses. Operating expenses jumped 5% YoY due to an adjustment in 4Q from a revised Collective Agreement. On the back of negative JAWs, HLBB’s cost-to-income (CTI) ratio broadened to 39.3% vs 37.5% a year ago.

• FY23 net credit cost stood at 6 bps, better than management’s FY23 target of around 10 bps. Other asset quality metrics remained healthy as allowance for loans and other impairments improved to RM115mn from RM163mn in FY22. Despite a writeback in overlays amounting to around RM40mn during the quarter, HLBB continues to be backed by a cumulative pre-emptive impairment buffer of RM574mn.

• Headline asset quality remains solid, although total gross impaired loans grew to RM1,042mn (FY22: RM820mn). The gross impaired loans ratio (GIL) widened to 0.57% (FY22: 0.49%). The GIL ratio for domestic operations rose 8 bps YoY to 0.59%, while the GIL ratio for overseas operations rose by 31 bps to 0.43%. By major segments, the GIL for residential properties and transport vehicles weakened by 7 and 2 bps YoY to 0.45% and 0.22%, respectively. Meanwhile, the GIL ratio for SMEs improved by 19 bps YoY to 1.06%. Other asset quality indicators, such as loan loss coverage, stood at 169% (FY22: 212%).

• The capital position remained healthy with a CET1 and Total Capital Ratio of 12.8% and 15.9%.

Impact

• Incorporating FY23 results, we finetuned our FY24/25 net profit estimates to RM4103.4/4,429.6mn from RM4,143.3/4,455.6mn. We forecast FY26 net profit to rise by a stronger 9.1% to RM4,832.9mn.

Outlook

• FY23’s solid performance was backed by robust loan growth, disciplined cost management and healthy asset quality. Anchoring on its solid foundation, HLBB expects to deliver another set of healthy earnings growth in FY24. However, the guidance has softened to 1) a loan growth of 6-7%, 2) more stable (but lower) NIM of 1.8% to 1.9%, 3) tightly controlled expenses with CTI targeted to be maintained below 40%, 4) resilient asset quality with FY23 GIL ratio at <0.7%, and net credit cost of around 10 bps. Taken together, HLBB foresees FY24 ROE to be at around 12%.

Valuation

• We lowered the sector’s market risk premium assumption to 6.0% from 6.5% on the back of an improved domestic political climate. As such, we raised HLBB’s TP to RM21.60 from RM19.70. Our valuation is based on an implied PBV of c. 1.36x based on the Gordon Growth Model. Hold reiterated on HLBB.

Source: TA Research - 1 Sept 2023