Riding on robust BOC contribution
- HLB’s FY6/22 NP was 10% above our forecast due to lower-than-expected LLP and higher-than-expected BOC contribution.
- We project a CNP growth rate of 12.5% for HLB in FY23F, driven by the absence of CM taxation and our projection of an 8% rise in BOC contribution.
- Reiterate Add, given the strong growth in associate contribution from BOC and its quality of being one of the most defensive against credit risks.
FY6/22 net profit above our expectation
Hong Leong Bank’s (HLB) FY6/22 net profit (NP) was 10% above our forecast due to lower-than-expected loan loss provisioning (LLP) and higher-than-expected associate contribution from Bank of Chengdu (BOC). However, the FY22 net profit was within market expectation at 98% of Bloomberg consensus estimate. FY22 DPS of 55 sen was within our expectation. Despite higher taxation from Cukai Makmur (CM), HLB’s NP grew a strong 15% in FY22, mainly driven by a 75% plunge in LLP and 40.2% surge in BOC contribution (driven by robust loan growth of 33%).
Record-high quarterly NP in 4QFY6/22
HLB’s NP surged 31.6% yoy to RM907.6m in 4QFY6/22, a record quarterly NP. This was catalysed by (1) 84.5% yoy plunge in its 4QFY22 LLP, (2) 81.2% yoy surge in non-interest income, and (3) 41.1% yoy increase in BOC contribution. 4QFY22 net profit also rose on a qoq basis, up 15.6%, spurred by (1) 41.1% qoq drop in LLP, (2) 87.9% qoq surge in noninterest income, and (3) 22.5% qoq rise in BOC contribution.
We project healthy CNP growth of 12.5% in FY23F
We are projecting a core net profit (CNP) growth rate of 12.5% for HLB in FY6/23F, underpinned by (1) 13.4% drop in tax expense (without CM taxation), (2) 8% rise in BOC contribution, and (3) 6.3% increase in net interest income, partly supported by the hike in overnight policy rate (OPR).
Upping net profit forecasts and target price
We factor in another 25bp OPR hike in 2022F in our earnings forecasts (on top of the two 25bp hikes we had already factored in) but this is offset by the increase in our cost of funds forecast in the light of the pick-up in deposit competition. However, we raise our FY23-24F NP forecasts by 3-4% as we increase our projection on BOC’s contribution by 16-18%. This lifts our DDM-based target price from RM23.30 to RM24.10.
Reiterate Add for HLB
Given HLB’s better-than-expected financial performance in 4QFY22, we maintain our Add call on the stock. Potential re-rating catalysts are (1) above-industry loan growth in FY23F, and (2) swift expansion in BOC contribution. We also regard HLB as one of the most defensive banks against the credit risks from various headwinds, i.e. Covid-19 outbreak and heightened inflation, as its asset quality is one of the best in the sector.
