After updating RHB ESG scoresheet for the banks under, RHB upgraded Hong Leong Bank’s (HL Bank) ESG score to 3.1 from 3.0, and raised their TP accordingly.
RHB Investment Bank Bhd (RHB), in its Malaysia Company Update today (Mar 22), said under its new 3–5-year strategy, HL Bank’s focus on ROE growth is also supported by an emphasis on sustainability, with carbon footprint management being a key pillar – which is positive for the bank’s ESG trajectory.
The positives
HL Bank’s total greenhouse gas emissions across its Malaysia, Hong Kong and Singapore operations fell by 16% in FY23 against its baseline year of FY19.
The bank also leverages on its strengths in the hire purchase and property financing space to offer attractive lending rates for battery, hybrid and plug-in hybrid EVs, as well as green buildings and townships for property developers, and affordable homes for homebuyers. It is also involved in numerous financial inclusion initiatives, including a microfinancing programme dedicated to aspiring entrepreneurs with low to no credit scores.
Areas for improvement?
HL Bank has yet to disclose its Scope 3 financed emissions, but RHB noted it has categorised its SME and corporate customers according to Bank Negara Malaysia’s Climate Change and Principles-Based Taxonomy classifications – this will assist the bank with identifying which customers require more support and engagement in their sustainability transition journeys.
Separately, RHB believes that the bank’s sustainable financing offerings could be widened, eg through sustainability-linked loans for its SME and corporate customers.
However, RHB acknowledged that HL Bank has MYR261m outstanding from a green bond issuance to be allocated towards large-scale solar photovoltaic projects.
Low profile, high performance
Post-updates to RHB’s ESG scoresheet for the banking sector, HL Bank now has a new ESG score of 3.1 (previously 3.0).
RHB increased their TP accordingly, after ascribing a 2% premium (from 0%) to its unchanged intrinsic value of MYR23.21.
RHB continues to like HL Bank as a preferred defensive pick, given its robust asset quality even while it aims to achieve above-industry average loan growth and ROE.
No changes were made to RHB’s forecasts.
