Review

• Reporting a 1HFY24 net profit of RM2,118mn, HLBB’s results came within expectations. Translating to a 4.7% YoY increase, the stronger set of results was underpinned mainly by a net writeback in allowances, along with more robust contributions from associates (+25.8% YoY). ROE stood at 12.2%, meeting HLBB’s guidance of around 12% for FY24.

• An interim single tier dividend of 25 sen/share (1HFY23: 21.0 sen/share) was declared.

• Including Islamic Banking operations, 6M net interest income (NII) slipped 6.1% YoY. The NIM declined by 29 bps YoY to 1.85% from 2.14% a year ago. QoQ, NIM improved slightly to 1.85% from 1.84% in 1QFY24, which was attributed to prudent asset liability management as well as an expansion in the loan portfolio.

• Total loans and advances accelerated 7.5% YoY, outpacing the industry’s growth. Retail loans rose 6.8% YoY, led by advances for Residential Properties (+7.2% YoY), Transport Vehicles (+10.1% YoY) and Unsecured Lending (+3.3% YoY). Business and Corporate broadened at a healthy pace of 8.0% YoY. SME loans advanced by 9.6% YoY, of which community SME banking ballooned by 12.6% YoY. Loan growth in overseas operations expanded at a stronger pace of 10.6% YoY (1QFY24: +4.4% YoY), led by Singapore (+14.2% YoY). International operations accounted for around 7.4% of HLBB’s total loan portfolio.

• Total deposits advanced by 6.2% YoY. Deposits from Individuals and Business Enterprises increased by 7.9% and 5.6% YoY. By type, CASA deposits rebounded to grow by 5.8% YoY, thanks to community acquisition initiatives and effective cash management solutions. CASA accounts for around 31.1% of total deposits. FDs ballooned by 12.3% YoY. Elsewhere, HLBB’s liquidity position remained robust, with the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) at 138% and 120%, respectively.

• Including Islamic Banking operations, the 1HFY24 non-interest income (non-NII) rose by around 3.8% YoY. The improved YoY performance was underpinned by a higher fee income of RM328mn in 1HFY24 vs RM305mn in 1HFY23. YoY, Credit card-related fees and Wealth management & Bancassurance income broadened by 10.6% and 19.4% YoY, respectively. Meanwhile, the trading, investment & forex income declined by 13.4% YoY to RM175mn.

• Operating expenses grew at a modest pace of 4.3% to RM1,134mn from RM1,087mn in 1HFY23, mostly due to higher personnel costs. On the back of negative JAWs, HLBB’s cost-to-income (CTI) ratio broadened to 37.0% vs 34.2% a year ago.

• 1HFY24 net credit cost stood at -3 bps, better than management’s FY24 target of around 10 bps. Other asset quality metrics remained healthy as allowance for loans and other impairments improved to a net writeback amounting to RM57mn from an impairment of RM63mn in 1HFY23.

Despite writebacks, HLBB continues to be backed by a cumulative preemptive impairment buffer of RM574mn.

• Headline asset quality remains solid with the total gross impaired loans at RM1,033mn (FY23: RM1,042mn). The gross impaired loans ratio (GIL) was also stable at 0.56% (FY23: 0.57%). The GIL ratio for domestic operations improved by 2 bps YTD to 0.57%, while the GIL ratio for overseas operations rose by 2 bps YTD to 0.45%. By major segments, the GIL for transport vehicles and SMEs weakened by 9 and 10 bps YTD to 0.31% and 1.16%. Meanwhile, the GIL ratio for residential properties improved by 5 bps YTD to 0.40%. Other asset quality indicators, such as loan loss coverage remained fairly stable at 163% (FY23: 169%).

• The capital position remained healthy with a CET1 and Total Capital Ratio of 12.9% and 15.9%.

Impact

• No change to our earnings estimates.

Outlook

• HLBB's business performance remained resilient, underpinned by robust loans/financing growth, improved non-NII, disciplined cost management and solid asset quality. Anchoring on its solid foundation, HLBB expects to deliver another set of healthy earnings growth in FY24.

• Despite ongoing external headwinds, YTD performance appears to be largely on track to meet guidance for the financial year. To recap, HLBB is looking at 1) a loan growth of 6-7%, 2) a more stable (but lower) NIM of 1.8% to 1.9%, 3) tightly controlled expenses with CTI targeted to be maintained below 40%, 4) resilient asset quality with GIL ratio at <0.7%, and net credit cost of around 10 bps. Taken together, HLBB foresees FY24 ROE to be at around 12%.

Valuation

• Rolling valuation base year to FY25, we raise HLBB’s TP to RM23.30 from RM21.60. Our valuation is based on an implied PBV of c. 1.39x based on the Gordon Growth Model. Buy reiterated on HLBB.

Source: TA Research - 29 Feb 2024