Investment Highlights

• We maintain our BUY call on Hong Leong Financial Group (HLFG) with unchanged fair value (FV) of RM22.40/share based on SOP valuation. Our FV reflects a neutral 3-star ESG rating.

• We make no changes to our earnings estimates as 9MFY22 core earnings were within expectation, accounting for 76.5% of our estimates. Meanwhile, it was ahead of consensus projection, making up 83% of consensus forecast.

• HLFG reported a higher core net profit of RM619mil (+% 3% QoQ) in 3QFY22 after excluding a one-off impact for Cukai Makmur.

• 9MFY22 core earnings grew 12.6% YoY to RM1.9bil attributed to lower provisions and higher share of profits from associates and JV.

• Its key subsidiary HLBB’s strong 9MFY22 PBT of RM3.1bil (+19.0% YoY) was contributed by lower provisions for potential credit losses while the earnings contribution from its associate, Bank of Chengdu remained robust.

• HLBB’s loans growth remained strong at 6.3% YoY with domestic loan growth of 5.3% YoY outpacing the industry’s 4.6% YoY.

• HLBB’s CI ratio for 9M22 was stable at 37.5%.

• The banking subsidiary’s asset quality stayed sound with GIL ratio of 0.48% while loan loss cover of 218% was significantly above the industry’s 116%. Annualised credit cost of HLBB was a low 11bps in 9MFY22.

• For 9MFY22, the key insurance subsidiary HLA’s gross premiums grew modestly by 1.6% YoY while its new business regular premiums (NBRP) slipped 17.9% YoY as consumers remained cautious in acquiring new life policies amid uncertainties of Covid-19.

• HLA Holding Group recorded a higher PBT of 6.4% YoY to RM305mil due to higher life fund surplus and share of profit from associates as well as lower operating expenses.

• The investment banking division under Hong Leong Capital (HLC) reported a lower 9MFY22 PBT of RM85mil (-44.6% YoY), driven by weaker contributions from investment banking and stockbroking business. This was partly offset by stronger earnings of the fund and unit trust management business from higher net management fees.

• The stockbroking business recorded lower trading volume from a drop in retail participation.

• HLFG’s consolidated CET1 ratio/Tier 1/total capital was 11%/12%/14.9%.

Source: AmInvest Research - 31 May 2022