Investment Highlights

• We maintain BUY on Hong Leong Financial Group (HLFG) wi a higher fair value (FV) of RM22.50/share from RM20.80/shar The increase in FV is based on a higher SOP valuation aft rolling forward our valuation for Hong Leong Bank (HLBB) FY25F. Our FV reflects a neutral 3-star ESG rating.

• Our FY24F/25F earnings are unchanged. However, we fin tuned our FY26F net profit by 1.2% after adjusting our foreca for total income.

• 6MFY24 earnings of RM1.57bil were within expectation making up 53.4% of our FY24F full-year estimate and 54.1% consensus projection.

• Net profit grew 6.2% YoY in 6MFY24, contributed by strong earnings from all divisions (commercial banking, insuranc and investment banking).

• HLBB, the commercial banking arm reported higher PBT RM2.6bil (+4.4%YoY) in 6MFY24, supported by an increase share of profits from associates and lower provisions.

• HLBB’s loans grew 7.5% YoY with domestic loan growth 7.2% YoY outpacing the industry’s 5.3% YoY.

• 6MFY24 CI ratio of HLBB rose to 39.7%. 6MFY24 saw a negativ JAW of 8.

• The banking subsidiary’s asset quality remained resilient wi a stable GIL ratio 0.56% while loan loss coverage of 163.4 was above the industry’s 91%.

• Net credit cost of HLBB improved to -6bps in 6MFY24 vs 7bp in 6MFY23.

• 6MFY24 HLA Holdings’ PBT grew by 3.1% YoY to RM259m The improved earnings were driven by stronger takafu contributions from Singapore and higher share of profits fro associates.

• The key insurance subsidiary, HLA’s PBT in 6MFY24 fe marginally by 1.3% YoY to RM221mil, attributed to low insurance income from higher reserving for medical claim and lower investment income from a decline in fair value gain on securities. Gross premiums and contributions of the li insurance business slipped 3.3% YoY while the new busines regular premiums declined by 16.8% YoY in 6MFY24.
   
• The group’s family takaful operating subsidiary, Hong Leong MSIG Takaful (HLMT), recorded a higher PBT of RM7.6mil in 6MFY24 due to a stronger takaful service result and investment income. Meanwhile, gross premium of the overseas general insurance subsidiaries, HL Assurance in Singapore and Hong Leong Insurance (Asia) in Hong Kong, grew double digits YoY. For its associate MSIG, which operates the general insurance business, the share of profit contribution rose by 86% YoY to RM45mil in 6MFY24.
   
• The investment banking division under Hong Leong Capital (HLC)’s PBT grew 29.8% YoY to RM47mil, attributed to higher non-interest income.
   
•  By segments, PBT of stockbroking increased by 58.3% YoY while that from investment banking/asset management declined by 34.9% YoY/17.8% YoY. The average AUM for assets under management was stable at RM11.6bil.  
   
• HLFG’s consolidated CET1 ratio/tier 1/total capital were sustained and stayed above the regulatory limits at 10.9%/12%/14.5%. 
   
• An interim dividend of 18 sen/share (payout: 13% based on 6MFY24 EPS) has been declared. The stock continues to trade at a low FY24F PE of 6.4x and P/BV of 0.6x.

Source: AmInvest Research - 29 Feb 2024