• Keep BUY and MYR23.20 TP, 18% upside and c.3% FY24F (Jun) yield. Hong Leong Bank’s 2QFY24 results met expectations and its key financial metrics are well on track to achieve FY24 targets. Management had previously said it was willing to allow LDR to rise to a more optimal level as part of its pursuit to achieve an ROE of 12-12.5% under its Transformative 3-5 Year Plan. From yesterday’s briefing, a higher dividend payout could now be on the cards as well.

• 2QFY24 results in line, with net profit of MYR1.1bn (+6% QoQ, +4% YoY) bringing 1HFY24 net profit to MYR2.1bn (+5% YoY) –52% of our and consensus FY24F PATMI. Annualised ROE of 12.2% is tracking slightly ahead of the 12% target (FY23: 11.8%) while CET-1 ratio improved 30bps QoQ to 12.9% (FY23: 12.8%). An interim DPS of 25 sen was declared (1HFY23: 21 sen), which represents an increased interim payout of 24.6% vs 1HFY23: 21.7%, and above our 21 sen expectation.

• Results highlights. 2QFY24 net profit rose 6% QoQ on a combination of higher PIOP (+6% QoQ, -6% YoY) and associates contribution (+26% QoQ, +20% YoY), partly offset by lower net writeback in loan impairments. NIM ticked up 1bp QoQ – the third consecutive QoQ increase thanks to a pickup in loan growth (+2% QoQ, +7% YoY) and shedding of costlier deposits from the optimisation of its asset liability mix. QoQ, loan growth was driven by broad segments of SME, corporate and retail while by geography, this came mainly from Singapore. Meanwhile, net loan impairment writeback declined QoQ to MYR6m from MYR51m. We think this largely reflects the ECL for loan growth as asset quality metrics were largely stable QoQ – GIL ratio was 0.56% while LLC stood at 163%.

• No change to FY24 guidance: HL Bank is on track to achieve all its FY24 guidance. Notable highlights include 7.5% loans growth, exceeding the guidance of 6-7%, and a net credit cost of -7bps vs c.10bps charge guided, which was retained. That said, management said this does not necessarily imply a spike in 2HFY24 credit cost. Also positive was NIM trajectory, where the bank thinks could end up at the upper half of its 1.8-1.9% guidance (1HFY24: 1.85%). There is no change to the MYR574m in overlays that HL Bank has on its books and management intends to hold on to as much of this as possible. There are no overlay writebacks planned for FY24F while for FY25F, it is looking at the possibility of reallocating the amount via a recalibration of its credit models.

• Other highlights. CASA was up 6% QoQ but we note this has been volatile. On an absolute basis, CASA has been hovering around the MYR60-66bn level for the past nine quarters. Management sees good CASA opportunities in the SME space, where the bank has traditionally been good at lending but now, intends to take its fair deposit share via its cash management suite. Finally, on dividends, management sees room to increase payouts to levels closer to peers with more headroom once its CET-1 ratio crosses above the 13% mark.

• No change to forecasts and TP. Our TP factors in a 0% ESG premium/discount as HL Bank’s ESG score of 3.0 is in line with the country median.

Source: RHB Research - 29 Feb 2024