Hong Leong Bank’s first nine months of 2017 results in line with estimates

KUCHING: Hong Leong Bank Bhd’s (Hong Leong Bank) first nine months of 2017 (9M17) results have come in line with estimates, with analysts observing that the group is on track with Bank of Chengdu (BoC) and prevailing net interest margins (NIMs).

Hong Leong Bank recently announced that the group’s net profit after tax for the third quarter of financial year 2017 (3QFY17) and nine months of FY17 (9MFY17) expanded by 14.4 per cent year on year (y-o-y) and 23.6 per cent y-o-y to RM570 million and RM1.66 billion respectively, compared to the corresponding periods last year.

According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), Hong Leong Bank’s 9MFY17 net profit came within its and consensus’ expectations at 72.4 per cent and 76.3 per cent of respective full year estimates.

“As results came in within expectiations we make no change to our forecasts,” MIDF Research said.

At 78 per cent and 76 per cent of house and consensus’ full-year estimates, respectively, the group’s 9M17 net profit of RM1.7 billion was also within the research arm of Kenanga Investment Bank Bhd’s (Kenanga Research) expectations.

No dividend was declared for the quarter as expected by Kenanga Research.

As results were in line with its estimates, the research arm’s FY17 forecast earnings were maintained at RM2.138 billion.

Kenanga Research noted that Hong Leong Bank expects the operations of BoC to stay stable and on course to recovery in 2017 on the back of cost discipline, lower loans loss provisions and prudent management.

“We understand that loan loss provisions have stabilised and unlikely to swing north,” it said.

Despite marginally below management’s target, the research arm believed the group’s loans growth target is achievable as demand for loans are slowly picking up with higher approved applications.

Kenanga Research pointed out that on a positive note, NIM looks healthy and improving translating into better net interest income (NII) which likely to offset any shortfall in target loans.

The research arm did not see downside pressure on NIM assured by management’s guidance of stable loan pricing with cost of funds likely to be constant as loandeposit ratio (LDR) is relatively within management’s target.

“We like the fact that there was another quarter of NIM improvement,” MIDF Research said. “We believe that the robust NIM will allow income growth to be maintained.”

MIDF Research also opined that loans growth will pick up and believe that the group has space to ramp-it up given that LDR is at a comfortable level.

The research arm further noted that the group has a very good asset quality as evident by the lowerthan-industry gross impaired loan (GIL) ratio.

“An added bonus was the normalisation of BOC’s earnings,” it said.

Hence, MIDF Research maintained its ‘buy’ call on Hong Leong Bank.

The research arm revised its target price to RM15.70 per share, from RM15.50 per share. Meanwhile, Kenanga Research maintained ‘ outperform’ and target price at RM15.15 per share.