Review

• Reporting a 1QFY25 net profit of RM1,090mn, HLBB’s results came within expectations, with net profit accounting for 24% of our FY25 net profit forecast. Translating to a 5.8% YoY increase, the stronger set of results was underpinned by a net writeback in allowances, along with more robust contributions from associates (+5.7% YoY). ROE stood at 11.8%, within HLBB’s guidance of around 12% for FY25.

• Including Islamic Banking operations, 1QFY25 net interest income (NII) expanded by 10.5% YoY to RM1,244mn compared to RM1,126mn a year ago. The NIM broadened by 8 bps YoY to 1.92% from 1.84% in 1QFY24. QoQ, NIM continued to improve 3 bps to 1.92% from 1.89% in 4QFY24, attributed to the robust expansion in the loan portfolio.

• Total loans and advances accelerated 6.9% YoY. Retail loans rose at a more robust pace of 7.2% YoY, led by advances for Residential Properties (+5.7% YoY), Transport Vehicles (+11.7% YoY) and Unsecured Lending (+8.5% YoY). Business and Corporate broadened at a healthy pace of 8.4% YoY. SME loans advanced by 11.4% YoY, of which community SME banking ballooned by 12.1% YoY. Loan growth in overseas operations contracted by 1.7%. However, in local currency terms, loans in Singapore and Vietnam grew by 10.2% and 15.2% respectively. International operations accounted for around 6% of HLBB’s total loan portfolio.

• Total deposits advanced by 4.9% YoY. Deposits from Individuals and Business Enterprises increased by 5.3% and 5.8% YoY. By type, CASA deposits grew at a faster pace of 13.6% YoY, thanks to community acquisition initiatives and effective cash management solutions. CASA accounts for around 32.1% of total deposits. FDs softened by 0.3% YoY. Elsewhere, HLBB’s liquidity position remained robust, with the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) at 140% and 120%, respectively.

• Including Islamic Banking operations, the 1QFY25 non-interest income (non-NII) improved by 32.1% YoY. The stronger YoY performance was underpinned by higher trading, investment & forex income, which accelerated by 71.1% YoY to RM130mn. Fee income was slightly higher at RM163mn in 1QFY25 vs RM160mn a year ago. YoY, Credit card-related fees were steady at around RM57.3mn, while Wealth management & Bancassurance income surged by 32.4% YoY. Fee income was also supported by GM franchise sales, which continued to gain traction and accelerated by 60.3% YoY.

• Operating expenses grew at a modest pace of 12.6% to RM626mn from RM556mn in 1QFY24, attributed to higher personnel costs, marketing expenses and admin & general expenses. On the back of positive JAWs, HLBB’s cost-to-income (CTI) ratio strengthened to 39.1% vs 39.9% a year ago.

• HLBB reported a net writeback in allowances amounting to RM8mn from an impairment of RM51mn in 1QFY24. Headline asset quality remains solid, with the total gross impaired loans changing marginally to RM1,049mn (FY24: RM1,041mn). The gross impaired loans ratio (GIL) was also stable at around 0.54% (FY24: 0.53%). The GIL ratio for domestic operations weakened by 1 bp YTD to 0.54%, while the GIL ratio for overseas operations improved by 5 bps YTD to 0.51%. By major segments, the GIL for transport vehicles weakened by 8 bps YoY to 0.43%. Meanwhile, the GIL ratio for residential properties was unchanged at 0.41%, while the GIL ratio for SMEs deteriorated by 8 bps YTD to 1.22%, respectively. Other asset quality indicators, such as loan loss coverage, remained healthy at 146% (FY24: 155%).

• The capital position remained healthy with a CET1 and Total Capital Ratio of 13.2% and 16.2%.

Impact

• No change to our earnings estimates.

Outlook

• HLBB's 1Q results have been encouraging, as robust loan and financing growth, a more stable NIM, disciplined cost management, solid asset quality, and healthy BOCD contributions drive resilient business performance. We believe HLBB is poised for another year of healthy earnings growth as the bank appears to be on track to meet all its FY25 management targets.

• For FY25, management is guiding towards 1) loan growth in the range of 6-7%, slightly down from 7.3% in FY24, 2) an improved NIM of 1.85% to 1.95%, 3) tight expense control with a CTI ratio maintained below 41%, 4) resilient asset quality, with a GIL ratio targeted at below 0.65%, and net credit cost expected to remain under 10 bps. With that, HLBB anticipates a modest improvement in ROE to around 12%, up from 11.8% in FY24. Management's targets are reasonable and aligned with our projections. To recap, our forecast for FY25 anticipates an ROE of 12%, consistent with the guidance provided by management.

Valuation

• We maintain HLBB’s TP at RM23.90. Our valuation is based on an implied PBV of c. 1.33x based on the Gordon Growth Model and a 3% ESG premium. Buy maintained on HLBB.

Source: TA Research - 29 Nov 2024