Malaysia Company Update
14 August 2025
Hong Leong Bank (HLBK MK)
Sticking The Landing; Still BUY
Target Price (Return):
MYR24.30 (+23%)
Price (Market Cap):
MYR19.70 (USD10,094m)
ESG score:
3.1 (out of 4)
Avg Daily Turnover (MYR/USD):
14.6m/3.44m
Analysts
Nabil Thoo
+603 2302 8123
nabil.thoo@rhbgroup.com
David Chong CFA
+603 2302 8106
david.chongvc@rhbgroup.com
Share Performance (%)
| YTD | 1m | 3m | 6m | 12m | |
|---|---|---|---|---|---|
| Absolute | (4.2) | 2.7 | (2.5) | (3.5) | 1.2 |
| Relative | 0.3 | 0.6 | (1.6) | (2.0) | 3.8 |
| 52-wk Price low/high (MYR) | 18.5 – 21.8 | ||||
Hong Leong Bank (HLBK MK) – Price Close
Source: Bloomberg
- Keep BUY and MYR24.30 TP, 23% upside and c.4% FY26F (Jun) yield. We think Hong Leong Bank could post a decent set of 4QFY25 results when it reports on 27 Aug – this would be driven by counter-industry strong loans growth, NIM relief from the statutory reserve rate (SRR) cut, and robust non-II. Our full-year earnings forecasts implies a 4QFY25 net profit of MYR1.07bn, up 2% QoQ and 3% YoY. That said, stronger-than-expected non-II and a higher-than-expected dividend payout could be sources of an upside surprise.
- Loans and deposit growth. According to management, HLBK saw strong loans growth in 4QFY25, largely from its SME banking segment, specifically industrial, real estate, and E&E industries and other data centre supply chain players. Retail banking was also sound, with residential mortgages being a key driver. As SME and consumer loans account for 19% and 64% of group loans, we think HLBK’s 4QFY25 loans growth could come in at the higher end of its 6-7% FY25F target, if not, above (9MFY25: +7.2% YoY). Management also observed strong CASA traction in 4QFY25, though it mentioned that it is seeing signs of the seasonal year-end competition for deposits starting, for now in the wealthy deposits segment.
- NIM. The combination of the SRR and overnight policy rate (OPR) cuts in May and Jul 2025 are expected to have a net negative impact of 2-3bps on NIM over a full-year period. However, management believes there are sufficient mitigating factors in the form of stronger non-II (falling bond yields and improving market sentiment), and potentially, lighter credit costs (lower cost of borrowings for customers).
- Asset quality. Asset quality in 4QFY25 was stable (3QFY25 GIL ratio: 0.57%), with management observing no signs of stress. While exposure to US exporters is small (mostly concentrated in manufacturing and E&E), management maintains a watchful eye on such customers. On the other hand, strong loans growth during the quarter means that a net credit charge, rather than a writeback, is more likely. Assuming GILs remain stable, we should see a marginal improvement in the LLC ratio (3QFY25: 95%), which management intends to gradually rebuild to >100%.
- Capital. Benefitting from internal capital optimisation, HLBK expects some capital uplift in 4QFY25 (3QFY25 CET-1 ratio: 12.8%). Coupled with the ongoing phased-in adoption of new Basel regulations, this could allow the group to gradually raise dividend payouts to 40% (FY24: 33%) sooner than the initially-guided FY27F. We have pencilled in a full-year DPS of MYR0.74 (36% full-year payout), implying a 2HFY25 DPS of MYR0.46 or a 47% 2H payout assuming our full-year earnings estimate is accurate.
- No changes to forecasts. Our TP – based on a GGM-derived P/BV of 1.2x (0.75SD below the mean) with a 2% ESG premium – is also maintained.
Forecasts and Valuation
| Jun-23 | Jun-24 | Jun-25F | Jun-26F | Jun-27F | |
|---|---|---|---|---|---|
| Reported net profit (MYRm) | 3,818 | 4,196 | 4,253 | 4,632 | 4,866 |
| Net profit growth (%) | 16.1 | 9.9 | 1.4 | 8.9 | 5.1 |
| Recurring net profit (MYRm) | 3,818 | 4,196 | 4,357 | 4,632 | 4,866 |
| Recurring EPS (MYR) | 1.86 | 2.05 | 2.12 | 2.26 | 2.37 |
| BVPS (MYR) | 16.59 | 18.16 | 19.22 | 20.69 | 22.17 |
| DPS (MYR) | 0.59 | 0.68 | 0.74 | 0.85 | 0.95 |
| Recurring P/E (x) | 10.57 | 9.62 | 9.28 | 8.73 | 8.31 |
| P/B (x) | 1.19 | 1.08 | 1.03 | 0.95 | 0.89 |
| Dividend Yield (%) | 3.0 | 3.5 | 3.8 | 4.3 | 4.8 |
| Return on average equity (%) | 11.8 | 11.8 | 11.1 | 11.3 | 11.1 |
Source: Company data, RHB
Overall ESG Score: 3.1 (out of 4)
E Score: 2.5 (GOOD)
S Score: 3.8 (EXCELLENT)
G Score: 3.8 (EXCELLENT)
Please refer to the ESG analysis on the next page
Emissions And ESG
Trend analysis
In FY24 (Jun), the group recorded a 24% reduction in group-wide operational emissions (ie Scope 1 and 2) compared to its baseline year of FY19. This is ahead of the group’s short-term goal of 15-25% reduction by FY26.
Emissions (tCO2e)
| Jun-22 | Jun-23 | Jun-24 | Jun-25 | |
|---|---|---|---|---|
| Scope 1 | 110 | 141 | 121 | na |
| Scope 2 | 28,447 | 27,614 | 26,278 | na |
| Scope 3 | 9,357 | 12,336 | 13,824 | na |
| Total emissions | 37,914 | 40,091 | 40,223 | na |
Source: Company data, RHB
Latest ESG-Related Developments
Flood relief assistance: HLB launched a comprehensive flood relief assistance programme for customers affected by recent floods in East Malaysia – the programme includes options for loan payment deferment and additional working capital financing to aid in business recovery.
Launches e-payment programme in rural Selangor: HLB recently launched the e-Duit Desa programme in Sabak Bernam, Selangor, providing residents with access to e-payments and other financial solutions as part of its financial inclusion agenda.
ESG Unbundled
Overall ESG Score: 3.1 (out of 4)
Last Updated: 13 Feb 2025
E Score: 2.5 (GOOD)
HLBK’s operational emissions (ie Scope 1 and 2) declined by 24% against its FY19 baseline – this falls within the group’s 15-25% reduction target by FY26. HLBK has also begun tracking Scope 3 financed emissions for its mortgage and hire purchase portfolios. It has MYR2.5bn in outstanding green bond proceeds to be channelled towards loans for ESG-linked purposes (eg large scale solar projects, purchase of green properties).
S Score: 3.8 (EXCELLENT)
HLBK embraces gender diversity, with 42% of women in senior management and 38% of women in the Board of Directors. Employee diversity, retention and training metrics are also decent.
G Score: 3.8 (EXCELLENT)
Four out of the seven Board members are independent directors. The Group Managing Director and select senior management members are assessed against objectives that are aligned with the bank’s sustainability and climate-related targets and strategy.
ESG Rating History
| Aug-23 | Oct-23 | Dec-23 | Feb-24 | Apr-24 | Jun-24 | Aug-24 | Oct-24 | Dec-24 | Feb-25 | Apr-25 | Jun-25 | Aug-25 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 3.0 | 3.0 | 3.0 | 3.1 | 3.1 | 3.1 | 3.1 | 3.1 | 3.1 | 3.1 | 3.1 | 3.1 | 3.1 |
Source: RHB
Financial Exhibits
Valuation basis
GGM derived intrinsic value with an ESG overlay. Key GGM assumptions are:
- Cost of equity of 9.8%;
- ROE of 11.0%; and
- Long-term growth of 3.5%.
Key drivers
Our earnings forecasts are most sensitive to changes in:
- Net interest margin;
- Loan impairment allowances; and
- Contributions from associates.
Key risks
The downside risks include:
- Weaker-than-expected loan growth;
- Softer-than-expected NIMs;
- Lower-than-expected non-interest income; and
- Lower-than-expected profits from Bank of Chengdu.
Company Profile
Hong Leong Bank is involved in the provision of conventional and Islamic banking services. The group’s operations span across Malaysia, Singapore, Hong Kong, Vietnam, Cambodia and China, via its strategic shareholding in Bank of Chengdu.
Financial summary (MYR)
| Jun-23 | Jun-24 | Jun-25F | Jun-26F | Jun-27F | |
|---|---|---|---|---|---|
| EPS | 1.86 | 2.05 | 2.07 | 2.26 | 2.37 |
| Recurring EPS | 1.86 | 2.05 | 2.12 | 2.26 | 2.37 |
| DPS | 0.59 | 0.68 | 0.74 | 0.85 | 0.95 |
| BVPS | 16.59 | 18.16 | 19.22 | 20.69 | 22.17 |
Valuation metrics
| Jun-23 | Jun-24 | Jun-25F | Jun-26F | Jun-27F | |
|---|---|---|---|---|---|
| Recurring P/E (x) | 10.57 | 9.62 | 9.28 | 8.73 | 8.31 |
| P/B (x) | 1.2 | 1.1 | 1.0 | 1.0 | 0.9 |
| Dividend Yield (%) | 3.0 | 3.5 | 3.8 | 4.3 | 4.8 |
Income statement (MYRm)
| Jun-23 | Jun-24 | Jun-25F | Jun-26F | Jun-27F | |
|---|---|---|---|---|---|
| Interest income | 9,708 | 11,333 | 11,900 | 12,414 | 12,956 |
| Interest expense | (5,155) | (6,664) | (6,962) | (7,226) | (7,584) |
| Net interest income | 4,552 | 4,669 | 4,938 | 5,188 | 5,372 |
| Non interest income | 1,133 | 1,102 | 1,272 | 1,358 | 1,479 |
| Total operating income | 5,686 | 5,771 | 6,210 | 6,546 | 6,851 |
| Overheads | (2,233) | (2,339) | (2,469) | (2,606) | (2,750) |
| Pre-provision operating profit | 3,452 | 3,432 | 3,741 | 3,941 | 4,101 |
| Loan impairment allowances | (115) | 114 | (48) | (67) | (103) |
| Other impairment allowances | 0 | (1) | 1 | 1 | 1 |
| Income from associates | 1,289 | 1,589 | 1,652 | 1,785 | 1,927 |
| Other exceptional items | (9) | ||||
| Pre-tax profit | 4,627 | 5,134 | 5,338 | 5,659 | 5,926 |
| Taxation | (808) | (938) | (1,085) | (1,027) | (1,060) |
| Reported net profit | 3,818 | 4,196 | 4,253 | 4,632 | 4,866 |
| Recurring net profit | 3,818 | 4,196 | 4,357 | 4,632 | 4,866 |
Profitability ratios
| Jun-23 | Jun-24 | Jun-25F | Jun-26F | Jun-27F | |
|---|---|---|---|---|---|
| Return on average assets (%) | 1.4 | 1.5 | 1.4 | 1.5 | 1.5 |
| Return on average equity (%) | 11.8 | 11.8 | 11.1 | 11.3 | 11.1 |
| Return on IEAs (%) | 3.9 | 4.2 | 4.2 | 4.2 | 4.2 |
| Cost of funds (%) | 2.3 | 2.7 | 2.7 | 2.8 | 2.8 |
| Net interest spread (%) | 1.6 | 1.5 | 1.5 | 1.4 | 1.4 |
| Net interest margin (%) | 1.8 | 1.7 | 1.7 | 1.7 | 1.7 |
| Non-interest income / total income (%) | 19.9 | 19.1 | 20.5 | 20.7 | 21.6 |
| Cost to income ratio (%) | 39.3 | 40.5 | 39.8 | 39.8 | 40.1 |
| Credit cost (bps) | 6.60 | (6.07) | 2.40 | 3.18 | 4.64 |
Balance sheet (MYRm)
| Jun-23 | Jun-24 | Jun-25F | Jun-26F | Jun-27F | |
|---|---|---|---|---|---|
| Total gross loans | 181,662 | 194,918 | 205,056 | 216,334 | 226,069 |
| Other interest earning assets | 79,379 | 82,416 | 85,216 | 88,459 | 91,856 |
| Total gross IEAS | 261,041 | 277,334 | 290,272 | 304,793 | 317,926 |
| Total provisions | (1,759) | (1,614) | (984) | (1,018) | (1,042) |
| Net loans to customers | 179,903 | 193,304 | 204,072 | 215,316 | 225,027 |
| Total net IEAS | 259,282 | 275,720 | 289,288 | 303,776 | 316,884 |
| Total non-IEAS | 20,568 | 22,069 | 18,111 | 17,454 | 18,790 |
| Total assets | 279,850 | 297,789 | 307,398 | 321,230 | 335,674 |
| Customer deposits | 213,902 | 222,599 | 233,729 | 244,247 | 255,238 |
| Other interest-bearing liabilities | 23,398 | 28,523 | 23,933 | 23,202 | 22,501 |
| Total IBLs | 237,301 | 251,123 | 257,662 | 267,449 | 277,739 |
| Total non-IBLS | 8,563 | 9,372 | 10,283 | 11,296 | 12,410 |
| Total liabilities | 245,864 | 260,495 | 267,945 | 278,745 | 290,149 |
| Share capital | 2,168 | 2,169 | 2,169 | 2,169 | 2,169 |
| Shareholders’ equity | 33,987 | 37,294 | 39,453 | 42,485 | 45,525 |
Asset quality and capital
| Jun-23 | Jun-24 | Jun-25F | Jun-26F | Jun-27F | |
|---|---|---|---|---|---|
| Reported NPLs / gross cust loans (%) | 0.6 | 0.5 | 0.5 | 0.4 | 0.4 |
| Total provisions / reported NPLs (%) | 168.8 | 155.0 | 100.7 | 107.5 | 109.9 |
| CET-1 ratio (%) | 13.0 | 13.6 | 13.3 | 13.3 | 13.2 |
| Tier-1 ratio (%) | 14.1 | 14.6 | 14.2 | 14.2 | 14.0 |
| Total capital ratio (%) | 16.2 | 16.6 | 16.1 | 16.0 | 15.8 |
Source: Company data, RHB
Guidance, Valuation & Charts
Figure 1: Hong Leong Bank – management guidance and financial targets for FY25
| FY24 achieved | 9MFY25 achieved | FY25 targets | Comments | |
|---|---|---|---|---|
| Reported core ROE | 11.8% | 11.6% | c.12% | We think HLBK should be able to achieve > 11.5% core ROE comfortably. In our view, non-II, and to a certain extent, associate contributions, are swing factors that would take the group to 12% ROE or above |
| Gross loan growth | 7.3% | 7.2% | 6-7% | We see scope for HLBK’s full-year loans growth print to come in at the higher end of management’s range – if not exceed – judging by management’s optimism on non-retail loans growth (SMEs in manufacturing, E&E among others), while retail loans growth also chugged along nicely |
| NIM | 1.86% | 1.90% | 1.85-1.95% | SRR relaxation and frontrunning of July’s OPR cut could allow HLBK’s NIM to come in at the higher end of the guided range |
| CIR | 40.5% | 38.8% | c.40% | No major concerns as HLBK’s exposure to tariff-exposed customers and sectors is small, albeit such customers and sectors will be monitored closely |
| GIL | 0.57% | 0.57% | <0.65% | Despite LLC falling to 95% in the previous reporting quarter, management is comfortable with its asset quality position. That said, strong loans growth will require provisions on originations, and thus, we think a credit cost charge is more likely than a writeback |
| Core net credit cost | -6bps | 1bp | <10bps | Despite LLC falling to 95% in the previous reporting quarter, management is comfortable with its asset quality position. That said, strong loans growth will require provisions on originations, and thus, we think a credit cost charge is more likely than a writeback |
| CASA mix | 30.8% | 30.6% | >30% | Management saw decent CASA build-up in 4QFY25 from both retail and non-retail customers. The launch of its new transaction banking platform in FY26F should help with further non-retail CASA traction |
Source: Company data, RHB
Valuation and TP
Our TP is kept at MYR24.30, and is based on an unchanged GGM-derived P/BV of 1.2x, around 0.75SD below the long-term mean. HLBK remains a sector Top Pick for its undemanding valuation and defensive stability.
Figure 4: HLBK – GGM valuation with ESG overlay
| Cost of equity (COE) computation: | |
|---|---|
| Risk free rate (%) | 4.0 |
| Equity premium (%) | 5.8 |
| Beta (x) | 1.0 |
| Cost of equity – CAPM (%) | 9.8 |
| ESG premium/(discount) (%) | 2.0 |
| Valuation: | |
|---|---|
| Sustainable ROE (%) | 11.0 |
| COE (%) | 9.8 |
| Long-term growth (g) | 3.5 |
| Implied P/BV (X) | 1.19 |
| BVPS – CY25F | MYR19.95 |
| Intrinsic value | MYR23.80 |
| ESG premium/(discount) | MYR0.48 |
| TP (rounded) | MYR24.30 |
Source: Company data, RHB
Figure 5 & 6: 12-month forward consensus P/E and P/BV
Charts show historical 12-month forward P/E and P/BV ratios against mean and standard deviations. The latest P/E is around 8.3x and P/BV is around 1.12x. Source: Bloomberg, RHB.
Recommendation Chart
| Date | Recommendation | Target Price | Price |
|---|---|---|---|
| 2025-05-29 | Buy | 24.3 | 19.6 |
| 2025-04-20 | Buy | 24.3 | 19.8 |
| 2025-02-27 | Buy | 26.6 | 21.3 |
| 2025-02-12 | Buy | 26.6 | 20.6 |
| 2024-11-29 | Buy | 26.6 | 20.7 |
| 2024-08-30 | Buy | 26.6 | 21.2 |
| 2024-05-31 | Buy | 23.6 | 19.3 |
| 2024-03-21 | Buy | 23.6 | 19.3 |
| 2024-02-19 | Buy | 23.2 | 19.4 |
| 2023-12-01 | Buy | 23.2 | 19.1 |
| 2023-09-01 | Buy | 23.2 | 20.0 |
| 2023-05-31 | Buy | 22.6 | 19.4 |
| 2023-03-08 | Buy | 23.1 | 20.6 |
| 2022-11-30 | Buy | 24.6 | 20.9 |
| 2022-08-31 | Buy | 23.9 | 20.9 |
Source: RHB, Bloomberg
Disclaimers and Disclosures
RHB Guide to Investment Ratings
Buy: Share price may exceed 10% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
Not Rated: Stock is not within regular research coverage
Investment Research Disclaimers
This report is for information purposes only. It is intended for circulation amongst RHB and its affiliates’ clients generally. This report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. This report is not intended, and should not be construed as, an offer or a solicitation of an offer to buy or sell the securities referred to herein.
The information contained herein is based upon publicly available information and has been obtained from sources that RHB believes to be reliable and correct at the time of issue. However, such sources have not been independently verified by RHB and/or its affiliates. The opinions expressed herein are RHB’s present opinions only and are subject to change without prior notice.
RESTRICTIONS ON DISTRIBUTION
Malaysia: This report is issued and distributed in Malaysia by RHB Investment Bank Berhad (“RHBIB”).
Indonesia: This report is issued and distributed in Indonesia by PT RHB Sekuritas Indonesia.
Singapore: This report is issued and distributed in Singapore by RHB Bank Berhad (through its Singapore branch).
United States: This report was prepared by RHB and is meant for distribution solely and directly to “major” U.S. institutional investors as defined under Rule 15a-6 under the U.S. Securities and Exchange Act of 1934, as amended.
DISCLOSURE OF CONFLICTS OF INTEREST
RHBIB Group forms a diversified financial group, undertaking various investment banking activities. As a result, in the ordinary course of its business, any member of the RHBIB Group, may, from time to time, have business relationships with, hold any positions in the securities and/or capital market products, trade or otherwise effect transactions for its own account or the account of its customers or perform and/or solicit investment, advisory or other services from any of the subject company(ies) covered in this research report.
For detailed disclosures, please refer to the links provided in the original report document.
