HLBANK: Financial Institution Exceeds Expectations with Strong Dividend Payout and Cost Efficiencies

Performance Review

A prominent financial institution reported a robust performance for the twelve months ending FY25, with its core net profit (NP) reaching RM4,681 million. This figure was notably within and, in some instances, above both the bank’s and street’s full-year forecasts, achieving 100% and 107% respectively. The strong showing was underpinned by improved Net Interest Income (NII) and Non-Interest Income (NOII) results, coupled with lower provisions.

The institution also announced a significant dividend per share (DPS) of 96.0 sen, translating to a 46% payout ratio for 12MFY25, substantially exceeding both internal and consensus expectations.

However, the fourth quarter of FY25 presented a slight dip, with core NP falling by 20% quarter-on-quarter to RM1,089 million. This was primarily influenced by weaker income from its Bank of Chengdu (BOCD) stake and elevated tax and operating expenses, without the benefit of large writebacks seen in previous periods.

Operational Strengths and Challenges

Management highlighted accelerated cost savings from ongoing technology investments, which are expected to contribute to an improved Cost-to-Income Ratio (CIR) of 39%. This efficiency is a key driver for the positive earnings surprise.

Despite the strong overall performance, the institution acknowledged certain headwinds. The volatility associated with its BOCD investment remains a concern, with the current Chinese economic environment being less than favorable. Furthermore, a potential compression in Net Interest Margin (NIM) is anticipated.

The institution has proactively managed asset quality by scaling back SME loan growth in response to a softer economic landscape. While not yet a critical issue, an uptick in hire purchase impaired loans, particularly in the electric vehicle (EV) segment, was noted.

Future Outlook and Investment Posture

Looking ahead, the institution has set a more conservative and achievable Return on Equity (ROE) target of 11.5-12.0% for FY26. The performance of its BOCD stake is identified as a decisive factor in achieving this target. The bank is also actively pursuing strategies to diversify its regional offerings to mitigate reliance on BOCD.

Analyst forecasts have been revised to account for updated management guidance, resulting in a slight adjustment of FY26F/FY27F Core NP by -4%/-4%, largely due to revised NIM expectations and dividend payout assumptions.

Key downside risks include a more significant-than-expected NIM compression, weaker NOII performance, and further deterioration in BOCD results.

Given the financial institution’s solid performance and strategic positioning, TA Securities maintains a BUY recommendation, with a revised target price of RM21.71 (from RM23.09). This valuation is based on a revised FY26F P/BV of 1.07x, reflecting updated earnings prospects and ROE-based valuations.