A robust 1HFY22
BUY maintained, TP: MYR24.70
We raise HL Bank’s FY22-24E net profit by 6-8% on higher NIM estimates and faster growth in Bank of Chengdu’s earnings. Fundamentals are impeccable and we expect the group’s ROE to improve to 11.7% in FY23E from 10.6% in FY22 (Cukai Makmur effect). We roll forward valuations and raise our TP to MYR24.70 from MYR20.80, supported by a CY23 ROE of 11.6%. BUY maintained.
Above expectations
HL Bank’s 2QFY22 core net profit of MYR739m (+10% YoY, -17% QoQ) was above expectations, taking 1HFY22 core net profit to MYR1,629m (+16.4% YoY) or 53%/54% of our full-year forecast/consensus respectively. The variance arose predominantly from further NIM expansion QoQ and much stronger earnings from Bank of Chengdu (BOCD), which saw its pretax profit contribution jump 40% YoY. BOCD now contributes to 22% of group pretax, up from 20% in 1HFY21. We understand that the bank has no
exposure to troubled property developers in China.
Targets revised
Loans under Payment Relief Assistance amounted to just 6% of total loans in Feb 2022. Credit cost averaged just 5bps in 1HFY22 and loan loss coverage is very comfortable at 321%. Management now lifts its FY22 loan growth target to 6-7% from 5-6% previously, its NIM target to >2.1% from 2.05%, credit cost of 10bps from 20bps and ROE of >10.5% from >10%.
Earnings raised
We raise our NIM assumption and BOCD earnings growth estimates, resulting in a 6%/8%/7% upward revision in FY22/23/24E earnings. Our FY22E ROE of 10.6% compares against management’s >10.5% target, and would be 11.6% excluding Cukai Makmur. We expect ROEs to improve to 11.7% in FY23.