Hong Leong Bank to maintain growth path

HLB tells analysts that its expectations of a solid performance for the financial year was supported by above-industry loan growth and strong net interest margin.

PETALING JAYA: Hong Leong Bank Bhd (HLB) is optimistic of maintaining its solid growth momentum for the remaining part of its financial year ending June 30, 2023 (FY23) following a robust first-quarter (1Q23) performance.

The fifth-largest lender in Malaysia, which reported a growth of 14.35% year-on-year (y-o-y) in net profit to RM981.41mil for 1Q23, told analysts at a recent briefing that its expectations of a solid performance for the financial year was supported by above-industry loan growth and strong net interest margin (NIM).

The bank also raised its key performance indicator targets for FY23, with return-on-equity (ROE) ratio expected to exceed 12% as compared to its earlier target of around 11%, and NIM to be higher at 2.14%, as compared to its earlier projection of around 2.10%.

RHB Research maintained its “buy” call on HLB, with a higher target price (TP) of RM24.60, as compared to RM23.90 before.

“We believe the share price will continue to grind higher, supported by its healthy earnings growth trajectory and strong asset quality,” the brokerage said in its report yesterday.

For 1Q23, HLB recorded an ROE of 12.6%, while gross loans and financing expanded 8.8% y-o-y. Asset quality remained solid with a gross impaired loan (GIL) ratio of 0.49% and loan impairment coverage (LIC) ratio of 212.2%.

“Although rising interest rates would exert some pressure on asset quality, HLB believes the rise in GIL would remain well controlled at around 0.6%,” RHB Research said.

“Management is also optimistic the bank can continue to post above-industry average loan growth in FY23.

“Growth of 7% to 7.5% (FY22: up 8%) would come from the residential mortgage, small and medium enterprises, and commercial segments,” it added.

CGS-CIMB Research reiterated its “add” call on HLB and raised its TP for the counter to RM25.30 from the previous RM24.10.

It regarded HLB as the most defensive banks against credit risks.

“We reaffirm our ‘add’ call on HLB, premised on the potential re-rating catalysts of above-industry loan growth and positive growth prospects for Bank of Chengdu (BoC) contribution,” CGS-CIMB Research explained.

“Despite the lockdowns in China, HLB remains positive on the earnings outlook for BoC as it will benefit from the country’s plan to develop Sichuan province and Chengdu. HLB thinks that the strong growth of 21.6% y-o-y in BoC contribution in 1Q23 can be sustained for the next few quarters,” it added.

Meanwhile, TA Research revised its TP for HLB to RM23.20 from RM24.40, with an unchanged “buy” recommendation.

“The bank’s asset quality remained strong, with adequate pre-emptive impairment buffers set aside and a stable GIL ratio envisaged. While management will remain vigilant to ongoing headwinds in China, BoC’s profit contribution is expected to remain healthy, with a good trajectory for future growth,” it added.

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