AmInvest Research ups Hong Leong Bank FV after ESG rating upgrade


KUALA LUMPUR: AmInvestment Research is maintaining its buy on Hong Leong Bank (HLBB) with a revised fair value (FV) to RM20.90/share (previously RM20.30 a share).

In a research note issued on Thursday, it said the higher FV was to reflect a 3% premium to its share price following the upgrade in its ESG rating to four stars from three.

It said on Thursday its FV was based on FY22 return-on-equity (ROE) of 10.6%, leading to price-to-book value (P/BV) of 1.3 times.

“We continue to like HLBB for its improving top line and NIM, stable asset quality as well as robust contribution from associates. We make no changes to our estimates, ” it said.

The research house said HLBB management held a briefing yesterday to provide an update on the bank’s approach towards sustainability and its key ESG initiatives.

The sustainability approach focuses on five key pillars: i) Digital at the core (initiatives for digital banking, improving customer experience, safeguarding data privacy and mitigate cyber security risk);

ii) Workforce readiness (training talented employees to newer roles and upholding ethics, integrity and compliance);

iii) Socially responsible business (climate-positive financing, responsible and fair banking, sustainable supply chain with vendors adopting models and sustainable practices and prevention of financial crime);

iv) Environmental management covering responsible consumption, coupled with the managing of environmental footprint; and

v) Community investment (social responsibility to build an inclusive community and improve financial literacy, and providing support to social enterprises to be sustainable in their operations).

AmInvest Research said HLBB group’s business and corporate banking (BCB) division has already embedded ESG into its credit/lending practices. In July 2020, BCB rolled out its ESG policy and assessment framework which included an internal risk scoring system and sector specific guidelines.

BCB has been engaging with its clients to embed sustainable business practices.

BCB also collaborated with the Jeffery Sachs Center on Sustainable Development at Sunway University to train its frontliners and risk managers on ESG policies and principles.

“The group is ceasing lending to the coal and fire plants effective July 1, 2021. This reflects HLBB’s commitment to sustainability, ” it said.

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