Investment Highlights

• We maintain our BUY call on Hong Leong Bank (HLBB) with revised fair value of RM24.10/share from RM22.60/share aft rolling forward our valuation to FY25F. Our FV is pegged FY25F ROE of 11%, leading to a P/BV of 1.2x with a 3% premiu accorded for a 4-star ESG rating.

• Our earnings estimates are unchanged as 6MFY24 net profit RM2.1bil was within expectations, making up 53.2% of o estimate and 52.2% of consensus projection.

• 6MFY24 earnings grew by 4.7% YoY, supported by higher no interest income (NOII), lower provisions and a stronger sha of profits from associates.

• On QoQ basis, the group reported a higher net profit RM1.1bil (+5.6%) in 2QFY24 on the back of increased n interest and NOII coupled with lower provisions.

• The stronger NOII in 6MFY24 was contributed largely by high fee income which offset a weaker income from investmen trading and fx. Fee income grew 7.5% YoY to RM328mil 6MFY24 underpinned by increase in income from weal management, bancassurance, credit cards and fx gains.

• The group’s loan growth grew by 7.5% YoY in 2QFY24 wi domestic loans expanding by 7.2% YoY above the industry 5.3% YoY. Loan growth was supported by expansion mortgages, auto financing, SME and overseas loan particularly Singapore.

• Net interest margin (NIM) continued to improve marginally b 1bps QoQ to 1.85% in 2QFY24, driven by expansion of loan and asset liability management. 6MFY24 NIM fell by 29bps Yo to 1.85% due to higher funding cost.

• CI ratio for 6M24 rose to 39.7% as a result of a negative JAW 8.7% YoY with growth in OPEX outpacing total income.

• The share of profits from its associates, BOC and Sichua Jincheng Consumer Finance Limited’s continued to be robu at RM803mil (+25.8% YoY). It accounted for 31.1% of th group’s 6MFY24 PBT.

• GIL ratio remained steady at 0.56%. Net credit cost in 6MFY was -6bps (6M23: 7bps), lower than management’s guidance 10bps for FY24. The group is on track to achieve all targets f FY24.

Source: AmInvest Research - 29 Feb 2024