We maintain BUY call on Hong Leong Bank (HLBB) with a slightly lower fair value of RM23.20/share from RM23.50/share. Our revised valuation is supported by a lower FY24F ROE of 12.3%, leading to a P/BV of 1.4x. No change to 4-star ESG rating, which we have accorded a 3% premium to our valuation.
9M23 underlying net profit was within expectations, making up 74.5% of our FY23F earnings and 76.2% of consensus’.
However, we fine-tuned FY23F/24F/25F earnings by -2.3%/- 1.5%/-1.3% to factor in lower net interest margin (NIM) and loan growth assumptions.
In 3Q23, the group reported a lower net profit of RM930mil (- 10.8% QoQ), contributed by a decline in net interest income (NII) from net interest margin (NIM) compression, higher operating expenses (opex) and provisions coupled with a lower share of profits from associate.
For 9M23, underlying earnings were RM2.95bil (+14.9%YoY), supported by higher non-interest income (NOII), lower allowances for loan losses and an improved share of profits from associate.
The group’s loan growth eased slightly to 7.2% YoY in 3Q23 (2Q23: 7.6% YoY) with domestic loans expanding by 6.2% YoY above the industry’s 5% YoY. Meanwhile, overseas loan growth moderated to 22% YoY, supported by the expansion of financing in Singapore, Cambodia, and Vietnam.
Net interest margin (NIM) slipped by 27bps QoQ to 1.82% in 3Q23. 9M23 NIM of 2.03% fell by 13bps YoY. The compression in interest margin was contributed by higher funding cost from keen deposit competition and the impact of higher SRR cost of 2bps-3bps. NIM in 4Q23 is likely to improve on the back on the OPR hike of 25bps to 3% in May 2023 as well as the ease in FD campaign rates recently in the market, particularly the longer tenured deposits.
CI ratio for 9M23 was stable at 37.6%.
The share of associate profits from its 18% stake in BOC and the remaining 12% in Sichuan Jincheng Consumer Finance continued to be robust at RM951mil (+31.8% YoY). It accounted for 26.5% of the group’s underlying 9M23 PBT.
Slight uptick in GIL ratio to 0.52% in 3Q23 vs. 0.49% in 2Q23. Net credit cost of 8bps (annualised) in 9M23 was within management’s guidance of 10bps for FY23.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....