RHB Research maintains ‘buy’ with Hong Leong Bank from RM 15.80, with 20 percent upside and 3 percent yield.
“Asset quality slippage in 3QFY20 is transitory as GILs have normalised on quick action by management. We expect earnings to remain resilient in FY21F, helped by solid asset quality, proactive credit risk management, declining cost of funds and stable contributions from the Bank of Chengdu,” the research house says.
The research house expects the bank’s FY21F net profit to be relatively resilient with an expected increase of 3 percent YoY as a decent 5 percent YoY increase in PIOP will help mitigate further uptick in credit cost to 18bps.
Key risks to the call include higher-than-expected credit cost, wearker-than-expected contributions from Bank of Chengdu and sharper-than-expected NIM compression.