Investment Highlights
- We maintain our BUY call on Hong Leong Bank (HLBB) with a higher fair value of RM21.10/share (previously: RM20.90/share). This is based on a higher FY22 ROE of 10.9% leading to P/BV of 1.3x. We tweak both our FY22 and 23 earnings marginally higher by 1.2% to account for lower CI ratio assumptions.
- 4Q21 net profit declined by 10.6% QoQ to RM689mil mainly due to lower non-interest income (NOII), higher operating expenses (opex) and provisions. HLBB continued to book in additional pre-emptive provisions of RM157mil in 4Q21.
- 12M21 core earnings came in at RM2.86bil (+8.5% YoY) with stronger total income partially offset by higher loan impairment allowances from the build-up of pre-emptive provisions.
- Cumulative earnings were within expectations, making up 98.9% and 99.6% of our and consensus estimate respectively.
- Loan growth eased to 6.8% YoY. Domestic loans grew 6.1% YoY well ahead of the industry’s growth of 3.4% YoY.
- Underlying NIM in 4Q21 was stable at 2.20%. For 12M21, normalised interest margin rose 18bps YoY to 2.14%.
- CI ratio for 12M21 was lower at 38.0%. The group recorded a positive JAW of 15.6% YoY.
- Share of profits from its 18.0% stake in Bank of Chengdu (BOC) and the remaining 12.0% in Sichuan Jincheng Consumer Finance Limited’s (both associate companies) continued to be robust at RM736mil (+14.6% YoY). It accounted for 21.2% of the group’s underlying 12M21 PBT.
- GIL ratio improved to 0.46%. For 12M21, HLBB’s net credit cost of 0.42% was higher than management’s credit cost guidance of 0.30% for FY21. This was due to the built-up preemptive provisions amounting to RM511mil. Excluding preemptive provisions, net credit cost was 0.09%.
- The group declared a final dividend of 35.22 sen/share bringing the total dividends to 50 sen/share for FY21 (payout: 36.0%). This was higher than the total dividends of 36 sen/share (payout: 30.0%) in FY20.
Source: AmInvest Research - 1 Sept 2021