HLBANK: Bank Delivers Steady Earnings Amidst Strong Core Growth and Efficiency Gains
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A recent investment bank research report indicates a stable financial performance, buoyed by robust core operations and strategic cost management, despite some tempering factors. The bank reported a broadly unchanged net profit in its first quarter of fiscal year 2026 (IQFY26), alongside significant growth in pre-provisioning profit.
Performance Highlights
The bank recorded a net profit of RM1,091 million in IQFY26, showing a marginal year-on-year increase of 0.1%. While the overall net profit remained steady, the core operating performance was notably strong, with pre-BOCD (Bank of China Debt) profit before allowances expanding by a commendable 10.9% year-on-year. Non-interest income (non-NII) also saw a substantial improvement, rising by 16.3% year-on-year, significantly contributing to the overall income stream.
However, the Return on Equity (ROE) for the quarter stood at 11.2%, slightly below the management’s full-year target range of 11.5-12.0%. Net interest income (NII) experienced a relatively flatter growth of 0.7% quarter-on-quarter, leading to a 6 bps quarter-on-quarter slip in Net Interest Margin (NIM) to 1.84%, contracting by 8 bps year-on-year.
Key Drivers and Challenges
The bank’s strong performance was largely attributable to rigorous cost management initiatives and productivity gains from AI-driven process optimisation. Operating expenses decreased by approximately 3.0% to RM607 million from RM626 million in IQFY25, strengthening the cost-to-income (CTI) ratio. Furthermore, a robust acquisition of Current Account Savings Account (CASA) deposits, driven by effective digital and community outreach, enhanced the bank’s liquidity position.
The notable increase in non-NII was primarily underpinned by higher trading, investment, and forex income, a surge in fee income (especially credit card-related fees), significant growth in wealth management and bancassurance, and strong GM franchise sales.
Despite these strengths, the bank faced headwinds. Overall profit before tax (PBT) and net profit growth were tempered by a 16.9% year-on-year decline in associate contributions. This was mainly due to the natural dilution of a BOCD stake and adverse foreign exchange translation effects from a stronger Malaysian Ringgit. Additionally, the gross impaired loans ratio (GIL) widened slightly to 0.57% (from 0.54% in FY25), primarily due to a steep increase in overseas operations to 1.57% from 0.77% in FY25, particularly from an account in Singapore. Loan loss coverage also softened quarter-on-quarter to 90% from 97% in FY25.
Outlook and Strategy
Management remains optimistic about the future, expecting net interest margins to gradually normalise as funding costs reprice. The bank foresees further earnings upside from continued strategic cost discipline and broader AI adoption, which is already reflected in its low CTI ratio. Loan and financing expansion accelerated at a healthy pace of 9.1% year-on-year, surpassing management’s target of 6-7%, with overseas operations (Singapore and Vietnam) posting strong year-on-year gains.
Non-NII momentum is anticipated to remain encouraging, with wealth management continuing to be a key growth pillar, supported by strategic collaborations and investments in regional teams and digital platforms. The bank’s capital position is also highlighted as healthy, maintaining strong CET1 and Total Capital Ratios of 12.7% and 15.7% respectively.
Analyst View
TA SECURITIES has maintained its “BUY” recommendation for the bank, reiterating a target price of RM22.97 based on an implied PBV of approximately 1.18x and a 3% ESG premium.
