HLBANK (5819) - Hong Leong Bank - Muted topline growth
Target RM13.00 (Stock Rating: REDUCE)
At 47% of our full-year forecast and 48% of consensus, Hong Leong Bank’s (HLB) 1HFY6/15 net profit was slightly below expectations due to weaker-than-expected loan and revenue growth. However, interim DPS of 15 sen was within expectations. The negative takeaway from the 1HFY15 results was the 2.2% yoy drop in operating revenue. We cut our FY15-17 EPS forecasts by 3-4% and DDM-based target price (COE of 10.6%, long-term growth of 4%) as we lower: 1) FY15 loan growth from 8.6% to 7%, and 2) FY15-17 non-interest income by 7-10%. HLB is still rated Reduce, premised on the concerns about weak topline growth and an expected upturn in credit cost, which are de-rating catalysts. We prefer RHB Capital.
Underpinned by net writeback for credit costs
HLB’s net profit rose by only 3.2% yoy to RM1.1bn in 1HFY15, primarily aided by the net writeback of RM68.8m for loan loss provisioning (LLP), compared to the provision of RM2.6m in 1HFY14. Nonetheless, 1HFY15 pre-provisioning operating profit even fell 2.1% yoy due to the 2.2% yoy drop in operating revenue. The topline was dragged by a 21.4% yoy decline in non-interest income, resulting from the weaker fee and investment income, as well as foreign exchange loss of RM23.2m.
Loan growth better but still weak
Although its loan growth picked up from 6.1% yoy in Sep 14 to 6.7% yoy in Dec 14, it was still weak (below the industry’s 8.7%). The improvement mainly came from the non-residential mortgage and auto loan segments, with expansion of 15.2% yoy and 1% yoy, respectively, in Dec 14. Meanwhile, residential mortgages sustained its pace, rising by 15.1% yoy in Sep-Dec 14. Working capital loans slid by a slightly lower rate of 1.6% yoy in Dec 14.
Improving asset quality
Gross impaired loan ratio improved from 1.15% in Sep 14 to 0.98% in Dec 14, while loan loss coverage rose from 128.7% to 129.7% over the same period.
Still Reduce rating
The drop in 1HFY15 operating revenue underscores our concerns about HLB’s topline growth. For this reason, as well as the expected upturn in credit costs, we advise investors to trim their holdings in HLB.
Source: CIMB Daybreak - 26 February 2015
Target RM13.00 (Stock Rating: REDUCE)
At 47% of our full-year forecast and 48% of consensus, Hong Leong Bank’s (HLB) 1HFY6/15 net profit was slightly below expectations due to weaker-than-expected loan and revenue growth. However, interim DPS of 15 sen was within expectations. The negative takeaway from the 1HFY15 results was the 2.2% yoy drop in operating revenue. We cut our FY15-17 EPS forecasts by 3-4% and DDM-based target price (COE of 10.6%, long-term growth of 4%) as we lower: 1) FY15 loan growth from 8.6% to 7%, and 2) FY15-17 non-interest income by 7-10%. HLB is still rated Reduce, premised on the concerns about weak topline growth and an expected upturn in credit cost, which are de-rating catalysts. We prefer RHB Capital.
Underpinned by net writeback for credit costs
HLB’s net profit rose by only 3.2% yoy to RM1.1bn in 1HFY15, primarily aided by the net writeback of RM68.8m for loan loss provisioning (LLP), compared to the provision of RM2.6m in 1HFY14. Nonetheless, 1HFY15 pre-provisioning operating profit even fell 2.1% yoy due to the 2.2% yoy drop in operating revenue. The topline was dragged by a 21.4% yoy decline in non-interest income, resulting from the weaker fee and investment income, as well as foreign exchange loss of RM23.2m.
Loan growth better but still weak
Although its loan growth picked up from 6.1% yoy in Sep 14 to 6.7% yoy in Dec 14, it was still weak (below the industry’s 8.7%). The improvement mainly came from the non-residential mortgage and auto loan segments, with expansion of 15.2% yoy and 1% yoy, respectively, in Dec 14. Meanwhile, residential mortgages sustained its pace, rising by 15.1% yoy in Sep-Dec 14. Working capital loans slid by a slightly lower rate of 1.6% yoy in Dec 14.
Improving asset quality
Gross impaired loan ratio improved from 1.15% in Sep 14 to 0.98% in Dec 14, while loan loss coverage rose from 128.7% to 129.7% over the same period.
Still Reduce rating
The drop in 1HFY15 operating revenue underscores our concerns about HLB’s topline growth. For this reason, as well as the expected upturn in credit costs, we advise investors to trim their holdings in HLB.
Source: CIMB Daybreak - 26 February 2015
