HLB's core earnings disappoint, says Affin Hwang

KUALA LUMPUR: Hong Leong Bank Bhd's core earnings of RM634.7mil were below expectations, said Affin Hwang Capital research.

The research house said the bank had announced a robust 1QFY19 headline net profit of RM706.9mil propped up by a non-recurring divestment gain of RM72.2mil.

"Otherwise, normalized 1QFY19 net profit was relatively flat yoy and qoq," it said.

Affin Hwang downgraded its rating from buy to hold with a lower target price of RM20.80 after revising FY19-21E earnings lower by 5.7% to 5.8%.

"1QFY19’s key drivers includes stronger growth in noninterest income (+36.4% yoy), decline in allowances (-55% yoy) and sustained profit contribution from Bank of Chengdu (BOCD) at RM145m (-2.0% yoy). 

"On the other hand, fund-based income declined by 3.4% yoy despite seeing positive traction in loan growth (+4.0% yoy) as funding pressure mounted (due to deposit competition and repricing of OPR). Hence, NIM declined by 15bps yoy to 1.98%, while on a qoq basis, down 5bps," it said. 

For 2019, Affin Hwang anticipates potentially improving business and consumer confidence in the country following the announcement of recent government policies.

"HLB continues to leverage on its niche in the retail and business-banking segments, of which had seen positive growth rates of 3.5-4.0% yoy," it said.