Hong Leong Bank Berhad - 2QFY25 results: Tech Investments Already Bearing Fruit
Thu, 27-Feb-2025 07:25 am
by Samuel Woo • Apex Research

Counter

HLBANK (5819)

Target Price (RM)

25.040

Recommendation

Buy

Summary

  • HLBK’s 2QFY25 core net profit climbed +6% yoy and +5% qoq to RM1.15bn, bringing 1HFY25 core net profit at RM2.24bn, which was deemed within expectations, accounting for 50% and 50% of ours and consensus expectations, respectively.

  • Management’s tone: Optimistic.

  • Re-iterate our BUY recommendation with a higher target price of RM25.04, based on FY26F GGM-PBV of 1.17x.

 

Results within expectations. 1HFY25 core net profit at RM1.15bn (+6% yoy) came within expectations, accounting for 51% of our core net profit forecast of RM4.48bn and was at 51% of consensus forecasted net profit of RM4.48bn.

 

YoY. 2QFY25 core net profit climbed +6% yoy to RM1.15bn, driven by improved NII and NOII, which offset higher OPEX and weaker Associate income. 1HFY25’s core net profit jumped +6% yoy to RM2.24bn, due to stronger NII and NOII offsetting higher OPEX, provisioning and tax expenses.

 

QoQ. 2QFY25 core net profit rose by +5% qoq driven by improved NOII and Associate incomes.

 

Outlook. Optimistic over dividend outlook: Management believes that at the rate that capital is accreting, it can increase its dividend payout to up to 50% -- which is much more in line with peers than its current <35% range. Aside from that, look to possible management overlay writebacks and cost savings, given that tech implementations made in previous years are already starting to bear fruit. The Group has already reduced its FY26F CIR target to 40% (from 41% previously). 

 

Earnings Revision. As earnings came within expectations, we make no changes to our forecasts.

 

Valuation. Re-iterate our BUY recommendation on HLBK with a higher target price of RM25.04, based on an FY26F P/BV of 1.17x GGM-PBV valuation and +1% ESG factored premium based on 4-star ESG rating. We increase our target price to account for our newly-added +1% ESG factored premium.

 

Risks. (1) BOCD-related issues, (2) Weakness in loan growth, (3) NIM compression.

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