Hong Leong Bank (HLBANK)’s FY23 net profit stood at RM3.82b. A final dividend of 38.0 sen was declared, totalling to 59.0 sen
for FY23.
“YoY, FY23 net interest income was flattish. Although Net Interest Margin (NIM) was compressed by 15 basis points, this was made up by an 8% growth in loans base,” said Kenanga Research (Kenanga) in the recent Results Note.
On the other hand, non-interest income grew by 11% following better treasury and investment performances. Cost-income ratio did see an increase to 39.3% on the back of higher personnel costs from revised collective agreements.
Credit costs saw further improvements to 6.6 basis points thanks to write-backs from its pre-emptive overlays. All in, this led to flattish operating profits while the group’s 19.8%-owned associate, Bank of Chengdu (BOCD) saw contributions increased by 25% on sustained financing growth and lower impaired loans. Overall, FY23 reported net profit came in at RM3.82b (+16%).
HLBANK has met most of its headline target for FY23, outperforming its loan growth expectations previously. However, it missed its cost-income ratio slightly.
For FY24, the group is projecting a lower loans growth target of 6%-7% after its FY23 of 8% delivery. It kept its target conservative as it
anticipates inflation to still weigh down on the demand for borrowings with the higher rate environment also being unsupportive.
That said, the group believes they can continue to outpace industry trajectory given their strong presence in mortgage and commercial banking.
NIMs are expected to remain stable between 1.8%-1.9% as the group opines that the milder competitive landscape at present would
remain.
“We believe banks would try to re optimise their profit rates after facing off strongly in deposit rates in the past quarters until we
experience another OPR hike,” said Kenanga.
Credit cost is expected to remain well-managed by the group, expecting it to stay below 10 basis points with a gross impaired loan reading of less than 0.70%. Although the group has been progressively writing back on its overlays, it maintained a buffer of RM574m against future uncertainties.
With regards to BOCD, the group has increased its stake to 19.8% from 17.6% following the exercise of convertible bonds which
translated to higher associate contributions. However, the group believes that other bond holders would subsequently exercise their
respective conversions in the coming periods to reduce HLBANK’s effective holdings.
For the time being, BOCD appears mostly unaffected by the downturn in China’s property market given its lack of exposure to
affected names. Meanwhile, property development loans only make up 7% of BOCD’s books.
“We anticipate normalisation of pressures from core operations to come in FY24 which may then moderate,” said Kenanga, maintaining the Outperform rating and a Target Price of RM22.65.
“We continue to view the stock as a solid pick for investors seeking stability, as the group’s Gross Impaired Loan ratio remains to be one of the lowest amongst peers whilst it is still able to generate better-than-industry loans growth,” said the research house.
Meanwhile, BOCD is expected to be a sustainable contributor in the near-term. That said, dividend expectations are moderate
against the group’s emphasis for sustainable payments.
Risks to their call include higher-than-expected margin squeeze, lower-than-expected loans growth, worse-than-expected deterioration in asset quality, further slowdown in capital market activities, adverse currency fluctuations, and changes to overnight policy rate.
