Hong Leong Bank’s earnings to remain resilient, says RHB Research

RHB Research maintains ‘buy’ with Hong Leong Bank with a a new RM 15.80 TP, with 16 percent upside and 3 percent yield. The bank’s 3QFY20 results had missed expectations however the research house is expecting earnings to remain resilient in FY20F-21F, supported by the bank’s solid asset quality.

The bank’s 3QFY20 net profit of RM535 million (-24 percent QoQ, -16 percent YoY) led to 9MFY20 earnings of RM1,925 million (-1% YoY vs 9MFY19 core net profit).

Earnings in the third quarter were impacted by the 6.6x jump in loan provisions, a 19 percent decline in non-II and the 5% drop in NII. Credit cost to 35bps (2QFY20: 6bps) due to the 42 percent spike in housing GILs and RM 65 million additional provisions for weaker economic outlook.

Based on active client engagement and rising proportion of borrowers making repayments, the bank’s management does not foresee major asset quality issues.

“Taking into account revised guidance (see Figure 2), we lowered earnings by 6 percent/4 percent for FY20F-21F. Overall, we expect FY20F net profit to be relatively resilient, falling a modest 2 percent YoY helped by higher trading and investment gains as well as well controlled opex,” the research house stated.

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