Hong Leong Bank's core earnings up 10.5% to US$515m in FY17

Pre-provision operating profit expanded a solid 8.8%.

Adjusting for prior years’ tax under provisions incurred for the quarter, Hong Leong Bank (HLBK) reported a core 4QFY17 net profit of RM530.5m (US$124m) (-5.0% yoy, -6.4% qoq) and FY17 core earnings of RM2,247m (US$515m) (+10.5% yoy).

FY17 earnings were in line with UOB Kay Hian's estimate, representing 101.7% of their full-year estimate and 100.6% of consensus. 4QFY17 core earnings declined 5% yoy as net credit cost normalised upwards to 21bp from a low base net write-back of -17bp in 4QFY16.

Here's more from UOB Kay Hian:

Pre-provision operating profit expanded a solid 8.8% yoy, supported by 7.0% growth in overall income and well-contained operating cost growth of 4.0%. This helped to underpin an improvement in cost to income ratio from 45.8% in 4QFY16 to 44.7% in 4QFY17.

Earnings drivers. Pre-provision profit operating lines that showed positive growth traction included: a) 10% yoy increase in net interest income arising from 19bp expansion in NIM supported by effective funding cost management and selective loan re-pricing, b) 64% growth in trading and investment income, and c) strong 28% yoy recovery in associate contribution (Bank of Chengdu).

Loans growth marginally below targets. FY17 loans growth at 3.8% was marginally below management’s targeted 5-6% growth due to subdued auto, credit cards and personal loans growth. Mortgage (+10.4% yoy) and SME (+6.0% yoy) segments helped underpin overall loans growth.