PETALINg JAYA: Hong Leong Bank Bhd
(HLB) is on track to meet all key targets set for its financial year ending June 30, 2024 (FY24), with potential earnings upside coming from robust loan growth and writebacks.
For FY24, HLB targets for a year-on-year loan growth of between 6% and 7%, net interest margins of between 1.8% and 1.9%, a cost-to-income (CI) ratio of below 40%, a gross impaired loan (GIL) ratio of below 0.7%, net credit cost of about 10 basis points (bps) and a return on equity (ROE) of about 12%.
Affin Hwang Investment Bank Research (AffinHwang) said HLB reported a “solid” first nine months ended March 31, 2024 (9M24), recording a net profit of RM3.16bil, up from RM2.95bil in 9M23.
This result is driven by writebacks and robust Bank of Chengdu contributions, and is in line with the research house and consensus estimates.
“Earnings upside in 2024 could come from more robust loan growth and writebacks,” AffinHwang noted.
The research house pointed out that HLB’s loan growth at the end of 9M24 was at 7.8%, 9M24 NIM at 1.85%, CI ratio at 37.2%, GIL ratio at 0.57%, credit recovery at four bps and ROE at 12%, all of which were within the target.
“We believe that HLB will likely meet its FY24 guidance as the economic outlook turns more positive while more loan volumes are expected from HLB’s niche in the SME and consumer markets,” AffinHwang noted.
Similarly, AmInvestment Bank Research said HLB’s 9M24 earnings were within expectations accounting for 79.4% of its and 77.7% of consensus estimate.
“HLB is on track to meet all key targets set for FY24,” it noted.
The research outfit has maintained a “buy” call on HLB, with an unchanged fair value of RM24.10 per share, pegging the stock to a FY25 ROE of 10.9%.
The research house has tweaked its earnings forecast up by 2.6% for FY24, but down by 1.2% and 1.1% for FY25 and FY26, respectively, following the readjustments on credit cost, CI ratio assumptions and factoring in a lower profit contribution from associates.
Meanwhile, AffinHwang, which reiterated a “buy” call on HLB, has raised its target price on the stock to RM25 per share from RM24 previously.
