• Keep BUY and MYR23.60 TP, 23% upside with c.3% FY25F (Jun) yield. Hong Leong Bank’s 3QFY24 results met expectations, and its key financial metrics are on track to achieve FY24 targets, suggesting that efforts to rebalance its growth drivers – as per its mid-term strategy plan – are coming along nicely. We still like the stock for its above-industry loan growth, solid asset quality, and liquid balance sheet, which have helped to set NIM on a recovery path.

• 3QFY24 results in line, with net profit of MYR1bn (-4% QoQ, +12% YoY) bringing 9MFY24 net profit to MYR3.2bn (+7% YoY) – at 78% of our and consensus FY24F PATMI. 9M PIOP was at 73% of our FY24 estimate, but this was more than compensated for by a loan impairment writeback of MYR83m in 9MFY24 vs our FY24F charge of MYR172m. 3QFY24 net profit eased 4% QoQ mainly due to lower contribution from associates (-14% QoQ), as was the trend in FY23. YoY, the rise in net profit was NII-led, coupled with a swing to a net loan impairment writeback in 3QFY24 vs a net charge a year ago, and 23% YoY rise in share of associate earnings.

• Key trends. NIM trend (+2bps QoQ, +5bps YoY) was a positive, with the QoQ rise on lower funding cost and asset/liability management. QoQ, loans rose 1.4% (+7.8% YoY) driven by SME and retail (auto and mortgages), while by geography, this was domestic-driven. Deposits were up 0.8% QoQ (+4.4% YoY) and hence, LDR ticked up 60bps QoQ to 86.6% (3QFY23: 83.8%). HLBK attributed softer non-II (-18% QoQ, -30% YoY) to reduced treasury opportunities, although fee income growth was healthy. Opex was under control (flat QoQ, +3% YoY) with CIR at 40.2% (2QFY24: 39.4%, 3QFY23: 40.1%) while absolute GIL ticked up 4% QoQ (+19% YoY – auto, mortgages and working capital), albeit from a low base. GIL ratio was stable QoQ at 0.57% (3QFY23: 0.52%) while LLC stood at 154% (2QFY24: 163%; 3QFY23: 197%).

• Bank of Chengdu (BOCD) highlights. BOCD’s 1QCY24 PATMI rose 13% YoY on 27% YoY loan growth while GIL was 10bps lower YoY at 0.66% (LLC: 504%). ROE was 17%. HLBK remained comfortable with asset quality but expects some moderation in earnings growth, partly as the base gets bigger – hence, the need for its domestic (and ASEAN operations) to pick up the slack, as set out in its Transformative 3-5 Year Plan unveiled last year. Domestically, HLBK was positive on its SME segment and business prospects around ecosystems relating to incoming FDIs.

• No change to FY24 guidance. 9MFY24 ROE of 12% is on track to hit the 12% target for FY24. Given the 9M figures, HLBK thinks loan growth could end up at the upper end of the 6-7% guided range while net credit cost (9M annualised: -7bps) should be comfortably below the c.10bps charge it guided for. Lastly, NIM is expected to continue its upward trajectory, bringing full-year NIM to the upper half of its 1.8-1.9% guidance (9MFY24: 1.85%).

• We maintain our forecasts and TP, which includes a 2% ESG premium.

Source: RHB Research - 31 May 2024