KUALA LUMPUR: AmInvestment Research is maintaining its Buy call on Hong Leong Bank (HLBB) with a revised fair value (FV) of RM19.30 a share from RM16.80 a share after rolling forward its valuation to the bank's financial year 2022 (FY22).
In its research note issued on Monday, it said this was based on a higher FY22 return on eaquity (ROE) of 10.0%, leading to a price-to-book value (P/BV) of 1.2 times.
AmInvest Research said HLBB’s first quarter ended Sept 30,2020 (1QFY21) net profit of RM729mil, represented a growth of 5.9% YoY with a strong total income growth of 11.0% YoY partially offset by conservative provisions of RM238mil.
Earnings were within expectations, making up 26.6% and 26.9% of its and consensus estimate respectively.
It pointed out HLBB’s loan growth accelerated to 6.8% YoY (4QFY20: 6.1% YoY). Domestic loans growth of 6.8% YoY outpaced the industry’s 4.4% YoY, supported by mortgages (residential property), SMEs, commercial banking and expansion of overseas’ markets loans.
The underlying net interest margins (NIM) in 1QFY21 rose by 8bps QoQ to 2% due to lower funding cost from the repricing of deposits after the recent Overnight Policy Rate (OPR) cuts.
“There is still room for upside in NIM from repricing of liabilities ahead, ” it said.
HLBB’s non-interest income (NOII) in 1Q21 was decent, underpinned by a strong treasury income (disposal gains of FVOCI securities). FVOCI reserves at RM578mil stayed strong for further monetisation of gain in securities when the opportunity arises.
AmInvest Research pointed out HLBB’s 1QFY21 share of profits from its 18.0% stake in Bank of Chengdu (BOC) and the remaining 12.0% in Sichuan Jincheng Consumer Finance Limited’s (now both associate companies) continued to be strong at RM167mil (15.3% YoY). It accounted for 18.8% of the group’s underlying 1QFY21 profit before tax.
The group’s gross impaired loan (GIL) ratio declined to a low of 0.48% (4QFY20: 0.61%). Credit cost rose to 0.28% in 1QFY21 (1Q20: -0.03%) with further top-up in provisions.
“About 8% of the group’s loans under assistance. Its payment relief assistance programme (PRAP) of RM11.8bil has been extended to 44,000 customers (78% to retail and 22% to SME and corporate borrowers), ” it said.
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