HLBANK (5819) : Hong Leong Bank - Non-interest income dampener
Target RM13.20 (Stock Rating: REDUCE)
Hong Leong Bank’s (HLB) 1QFY6/15 net profit was below our expectations, at 22% of our full-year forecast, but in line with consensus (24%). The discrepancies to our forecast were due to the lower-than-expected topline. As expected, there was no dividend declared in the 1Q. We cut our non-interest income projections by 9-13%, pushing down our FY14-16 EPS forecasts by 3-6%. However, our DDM-based target price (COE of 10.6%; LT growth of 4%) rises as we roll over to an end-2015 valuation. Maintain Reduce in view of the possible de-rating catalysts of: 1) below-industry loan growth, 2) an expected upturn in credit costs, 3) weak topline expansion, and 4) continuous pressure on margins. We prefer Maybank.
Positives and negatives in 1QFY15
We were not surprised by the slight 3bp yoy rise in 1QFY15 net interest margin, given the positive impact of the rate hike and the banks’ active asset-liability management. This helped the bank to register a commendable 9.1% yoy rise in 1QFY15 net interest income. However, 1Q net profit only increased 0.6% yoy as it was dragged by the 28.8% slump in non-interest income resulting from the weaker fee income and foreign exchange gains.
Weaker loan growth
HLB’s loan growth eased from 7.2% yoy in Jun 2014 to 6.1% yoy in Sep 2014 (vs. the industry’s 9%). This was pulled down by the 1.8% yoy drop in working capital loans, which more than offset the improvement in the pace of residential mortgages to 15% yoy in Sep 2014. Meanwhile, auto loans only inched up by 0.1% yoy in Sep 2014, as HLB restricted its exposure to this segment.
Stable asset quality
The gross impaired loan ratio inched down from 1.18% in Jun 2014 to 1.15% in Sep 2014, while loan loss coverage remained stable at around 128.8% in Jun-Sep 2014.
Still a Reduce
We advise investors to trim their exposures in HLB as the 1QFY15 results showed weakness in topline and loan growth. We do not expect strong recovery in these areas in the coming quarters, given the keen industry competition.
Source: CIMB Daybreak - 26 November 2014
Target RM13.20 (Stock Rating: REDUCE)
Hong Leong Bank’s (HLB) 1QFY6/15 net profit was below our expectations, at 22% of our full-year forecast, but in line with consensus (24%). The discrepancies to our forecast were due to the lower-than-expected topline. As expected, there was no dividend declared in the 1Q. We cut our non-interest income projections by 9-13%, pushing down our FY14-16 EPS forecasts by 3-6%. However, our DDM-based target price (COE of 10.6%; LT growth of 4%) rises as we roll over to an end-2015 valuation. Maintain Reduce in view of the possible de-rating catalysts of: 1) below-industry loan growth, 2) an expected upturn in credit costs, 3) weak topline expansion, and 4) continuous pressure on margins. We prefer Maybank.
Positives and negatives in 1QFY15
We were not surprised by the slight 3bp yoy rise in 1QFY15 net interest margin, given the positive impact of the rate hike and the banks’ active asset-liability management. This helped the bank to register a commendable 9.1% yoy rise in 1QFY15 net interest income. However, 1Q net profit only increased 0.6% yoy as it was dragged by the 28.8% slump in non-interest income resulting from the weaker fee income and foreign exchange gains.
Weaker loan growth
HLB’s loan growth eased from 7.2% yoy in Jun 2014 to 6.1% yoy in Sep 2014 (vs. the industry’s 9%). This was pulled down by the 1.8% yoy drop in working capital loans, which more than offset the improvement in the pace of residential mortgages to 15% yoy in Sep 2014. Meanwhile, auto loans only inched up by 0.1% yoy in Sep 2014, as HLB restricted its exposure to this segment.
Stable asset quality
The gross impaired loan ratio inched down from 1.18% in Jun 2014 to 1.15% in Sep 2014, while loan loss coverage remained stable at around 128.8% in Jun-Sep 2014.
Still a Reduce
We advise investors to trim their exposures in HLB as the 1QFY15 results showed weakness in topline and loan growth. We do not expect strong recovery in these areas in the coming quarters, given the keen industry competition.
Source: CIMB Daybreak - 26 November 2014
