Hong Leong Bank Bhd’s 1QFY24 results met expectations with an unchanged FY24 targets, only underwhelmed for CASA mix target of more than 30%.
RHB Investment Bank (RHB IB) said among the results standouts are slightly better NIM, improved Non-II and cost efficiency and stable asset quality.
“We continue to like the stock for its above-industry loan growth, solid asset quality and liquid balance sheet, where management
sees scope for further liquidity management. This will be positive for NIM,” it said in its Malaysia Results Review today (Dec 1).
The research house maintains its BUY call and TP of RM23.20, 22% upside and 3% FY24F (Jun) yield, TP as a 0% ESG premium/discount.
The 1QFY24 results were in line, with net profit of RM1 billion, up by 19% QoQ, and by 5% YoY, forming 25 to 26% of RHB IB’s and consensus FY24F.
It said QoQ, most line item trends were positive operating income rose 7% QoQ, lower opex as 4QFY23 was impacted by top up provisions for the new collective agreement while CIR improved to 39.9% from 45.1% in 4QFY23, net loan impairment writeback as asset quality was
stable; and higher associate contribution, up by 5% QoQ.
The research house also noted that HLB’s NIM inched up 1 basis point (bps) QoQ, which we estimate was due to lower funding cost.
“It estimates this could enhance NIM by 1 to 2 basis points (bps). All-in, management appears optimistic on its NIM trajectory,” it said.
Heading into the year-end seasonal deposit competition, RHB IB noted HLB has seen deposit pricing tick up by 10 to 15 basis points in November as compared to October.
“However, pricing rationality is much better than a year ago and HLB does not think the keener competition will go deep into 1QCY24.
“Also, management said it will be willing to allow its LDR to rise further towards that for the industry (of 87.6 vs 1QFY24 LDR of 85.2%) for a more optimal asset-liability management.
“It estimates this could enhance NIM by 1 to 2 bps. All-in, management appears optimistic on its NIM trajectory,” it said.
RHB IB also noted that it had muted start for loan growth, which was flat QoQ , up by 7% YoY.
“This was mainly due to corporate loan repayments, which management said was trade-related. Also, trade loan margin was too fine and as such, the loans that rolled off were not replaced.
“Otherwise, SME loans grew 4% while retail was up 6% (figures annualised). Meanwhile, deposits contracted by 1% QoQ, up 8% YoY with CASA down 5% QoQ and short term placements declining 13% QoQ.
The research house said the focus remains on sticky retail deposits and HLBB is willing to shed its more price-sensitive global market deposits as it optimises its LDR levels.
“Asset quality stable with GIL flat QoQ, up by 23% YoY thanks to a low impaired loan formation rate of 25bps. As such, its GIL and LLC ratios were broadly stable QoQ at 0.57% and 165% vs FY23: 0.57% and 169%. Overlay buffers of MYR574m were unchanged,” it said.
It said that 9M23 net profit rose 21% YoY on 26% YoY loan growth while GIL was stable at 0.7% (LLC: 516%). ROE was 18%.
“It is a Top-10 city commercial bank in terms of assets but ranked second on ROA. It does not have exposure to distressed property developers as it had stayed prudent in its borrower and geographic selections.
