Hong Leong Bank Berhad (HLB) 1HFY24 results were above expectations resulting in a 2-4% FY24-26E net profit forecasts raise based on three standouts: stable NIMs through better asset utilisation, credit cost writebacks from stable asset quality and strong earnings growth from BOCD.
Maybank Investment Bank (Maybank IB) in a note today (Feb 29) said there is room for improvement in HLB’s dividend yields, which trail the industry average of >5%.
Maybank IB maintains a BUY call with an unchanged TP of MYR23.00, pegged to an unchanged PBV target of 1.3x (CY24E ROE: 11.7%).
Above expectations
HLB’s 2QFY24 core net profit of MYR1.09b (+4% YoY, +6% QoQ) took 1HFY24 net profit to MYR2.12b (+5% YoY) – above expectations at 53%/52% of Maybank IB’s full-year forecast and consensus with a variance being largely due to stronger-than-expected contribution from Bank of Chengdu (BOCD) and a credit cost writeback in 1HFY24.
What stood out during the quarter were a) its stable QoQ NIMs which bucked industry trends (with an LDR of just 86.8%, there is room to further improve liquidity management), and b) credit cost writebacks amid stable asset quality (and untouched overlays of MYR574m).
Trending in line with targets
HLB’s results are trending in line with management’s targets for FY24: loan growth target of 6-7% (1HFY24: 7.5%), NIM of 1.8-1.9% (1HFY24: 1.85%), cost/income ratio <40% (1HFY24: 39.7%), GIL ratio <0.7% (1HFY24: 0.56%), net credit cost of ~10bps (1HFY24: net writeback) and ROE of ~12% (1HFY24: 12.2%).
Marginally raising forecast
Factoring in faster earnings growth from BOCD and a credit cost of 5bps for FY24 (from 10bps previously), Maybank IB lifts their FY24/25/26E net profit expectations by 4%/2%/3% respectively. Positively, the group announced a higher interim DPS of 25sen versus 21sen in 1HFY23. Maybank IB has factored in a higher dividend payout ratio of 35% for FY24 versus 32% in FY23.
