• 1QFY25 results met expectations

• Expect continued NIM growth despite year-end deposit competition

• Maintain BUY rating with a GGM-derived target price of RM24.30

Results broadly in line

1QFY25 earnings of RM1.1bn (+5% QoQ, +6% YoY) accounted for 24% of our and consensus full-year estimates, in line with expectations. 1QFY25 recorded a 3bps QoQ increase in NIM to 1.92%. Despite potential liquidity competition, management remains confident of achieving the upper end of its 1.85-1.95% guidance. Non-interest income grew 31% QoQ due to stronger wealth management business and GM franchise sales. The higher PIOP (+15% QoQ) was offset by loan loss provision (-RM8m vs 4QFY24: RM31m) and a 7% decline in Bank of Chengdu (BOCD) contributions. Reported ROE and ROE stood at 11.8% and 1.48%, respectively; the CET 1 ratio remains comfortable at 13.2%.

On track to achieve FY25 targets

Loans growth was commendable at 7% YoY (target: 6–7%), driven by key segments such as SME (+11% YoY) and transport vehicles (+12% YoY). Asset quality remains resilient, with one of the industry’s best GIL ratios, which improved to 0.54% (from 0.53%) in 1QFY25, comfortably below the <0.65% target. SME GILs have shown no notable deterioration, supported by a well-diversified portfolio across various sectors. On BOCD, Management noted that its shareholding in BOCD is expected to decline to 17.8% by the end of FY25 if all outstanding bonds are converted, in line with its strategy to reduce its stake.

Maintain BUY and GGM-derived RM24.30 TP

We maintain our forecasts, BUY rating, and GGM-derived target price of RM24.30. Our key assumptions include FY25–27E ROE of 11.6%, LTG of 3.5%, and COE of 10.4%. Our target price implies a P/B of 1.2x (below its 10-year historical mean) against FY25E 11.8% ROE, reflecting the HLB’s defensive attributes and solid asset quality. We believe a discount is warranted due to significant contributions from its associates and lower market liquidity. Key risks to our BUY call include extended compression in NIM, inflating cost base, rapidly deteriorating asset quality, and intense competition in deposits, leading to the high cost of funds.

Source: Philip Capital Research - 29 Nov 2024