PETALING JAYA: Hong Leong Bank Bhd (HLB) had a strong start for the first quarter of financial year 2022 (FY22) with its net profit of RM858.25mil mainly meeting or beating analysts’ expectations.

       Analysts continue to like the bank, with most of them having a “buy” or “add” call on it, noting that its asset quality remains strong with the second-lowest gross impaired loan ratio of 0.48% as at end-September 2021.

       Although its topline was impacted by Covid-19 pandemic control measures, RHB Research said the momentum is recovering on the rise in loan drawdowns while operating leverage continues to improve.

       In its report, RHB said loans under relief assistance eased to RM34.9bil, or 22.4% of gross loans at end-October. This figure stood at RM35.8bil in September.

       “Based on checks, management estimates only 6%-7% of these loans are at risk of borrowers having difficulties resuming payments.

       “With loan loss coverage at a comfortable 239% and cumulative preemptive provisions of RM835mil, HLB has sufficient buffers to absorb potential losses.

       “Management maintained its FY22 credit cost guidance at 20 basis points (bps),” said the research firm.

       It said the stronger rise in first-quarter net profit was due to lower-than-expected provisions. Among others, it said, reported return-on-average equity was 11.7%, ahead of management’s over 10% target.

       CET-1 stood at a healthy 13%, while cost-to-income ratio improved to 36.8% versus 40% in the fourth quarter of FY21.

       Credit cost eased to 13bps versus 50bps in the fourth quarter of FY21, as preemptive provisions were a lower RM23mil (fourth quarter of FY21: RM157mil).

       However, some analysts are of the view that the bank’s low loan loss provisioning in the first quarter of FY22 will not be sustainable in the coming quarters as they expect the industry’s gross impaired loan ratio to only peak in 2022.

       They also note that the taxation under Cukai Makmur was not reflected in HLIB’s core net profit.

       Factoring this, AmInvestment Bank Research said its net profit forecast for FY22 has been lowered by 8.5%.

       But because this is a one-off additional tax, its core net profit for FY22 of RM3.3bil remains unchanged.

       On a brighter note, a catalyst would come from the strong growth in associate, Bank of Chengdu (BoC) in China, where its contribution surged by 30.8% year-on-year in the first quarter of FY22.

       CGS CIMB Research projected this to expand by a healthy 8% in FY22.

       Meanwhile, Maybank Investment Bank Research said it understands that BoC has no exposure to the troubled property developers in China.