Investment Highlights

• We maintain BUY call on Hong Leong Financial Group (HLFG) while raising our fair value to RM22.40/share (previously: RM20.50/share) based on higher SOP valuation.
• We tweak our FY22/23/24 earnings by 1.3%/5.0%/5.6% to reflect lower CI ratio assumptions.
• HLFG reported a higher core net profit of RM708mil (+5.3% QoQ) in 2Q22 after excluding a one-off tax provision for the prosperity tax. Total provisions were lower by 31.6% QoQ.
• 6M22 core earnings grew 23.8% YoY to RM1.38bil attributed to lower opex and provisions.
• We deemed the core earnings to be within expectation, accounting for 56.0% of our estimates. Meanwhile, it was ahead of consensus projection, making up 61.0% of consensus forecast.
• Its key subsidiary, HLBB, reported a strong PBT of RM2.1bil (+24.2% YoY) in 6M22 contributed by higher total income, lower opex and provisions while the earnings contribution from its associate Bank of Chengdu remained robust.
• HLBB’s loans accelerated to 6.7% YoY with a domestic loan growth of 5.7% YoY, outpacing the industry’s 4.5% YoY.
• HLBB’s CI ratio for 1Q22 improved to 37.1% with a positive JAW of 1.3% YoY.
• The banking subsidiary’s asset quality remained sound with GIL ratio of 0.46% while loan loss cover of 250.6% was significantly above the industry’s 129.0%. Credit cost of HLBB stood at a low 0.10% for 6M22.
• For 6M22, gross premiums of HLA, its key insurance subsidiary, grew by 3.0% YoY while its new business regular premiums (NBRP) declined by 17.8% YoY impacted by Covid-19 restrictions. HLA Holding Group recorded higher PBT of 12.6% YoY to RM217mil due to higher life fund surplus and share of profit from associates.
• Its investment banking division under Hong Leong Capital (HLC) reported a lower PBT of RM58mil (-45.2% YoY) for 6M22 due to lower contributions from the investment banking and stockbroking businesses.
• The stockbroking business recorded lower trading volume from a drop in retail participation.
• HLFG’s consolidated CET1, Tier 1 and total capital ratios were 11.36%, 12.29% and 15.15% in 2Q22 respectively.
• The group declared an interim dividend of 15 sen/share in 6M22 which was higher than 10.8 sen/share in 6M21.

Source: AmInvest Research - 1 Mar 2022