Stock Name: HLBANK
Company Name: HONG LEONG BANK BHD
Research House: INTER PACIFIC
KUALA LUMPUR: Inter-Pacific Research Sdn Bhd has reiterated its outperform recommendation on HONG LEONG BANK BHD [] (HLBB) at RM8.75 with an upgraded our fair value of RM10.20 from RM9.34 previously.
It said the upward revision was based on higher expected earnings growth, price to book of two times and higher ROE of 16.1% by assuming the EON merger will go through.
"Our sensitivity analysis showed through the proposed fund raising exercise, both EPS and book value would be enhanced. EPS could potentially increase between by 14% and 10% respectively for the two case scenarios in FY11, while the book value is projected to increase around 5.3%," it said.
The research house said that looking at EON Cap's loan loss coverage, it stood at 86.1% end-December 2009 which turned out to be below HLBB's 123.5%.
"Possibilities for EON Cap's loan loss coverage to be alleviated above 100% cannot be ruled out. Should this happen, we are looking at a one-off provision of RM164.5 million.
"Also, we expect a slight dilution to the ROE close to 1 percentage from the enhancement of book value/share," it said.
Inter-Pacific Research said the merger would augur well for HLBB due to: (1) achieves greater economic of scale which is vital to be competitive; (2) larger distribution network, stronger products and services, and rolling out of more innovative and competitive products; (3) large and diversified fund base which will provide more flexibility to support the business; and (4) wider range of talented people and skills.
Company Name: HONG LEONG BANK BHD
Research House: INTER PACIFIC
KUALA LUMPUR: Inter-Pacific Research Sdn Bhd has reiterated its outperform recommendation on HONG LEONG BANK BHD [] (HLBB) at RM8.75 with an upgraded our fair value of RM10.20 from RM9.34 previously.
It said the upward revision was based on higher expected earnings growth, price to book of two times and higher ROE of 16.1% by assuming the EON merger will go through.
"Our sensitivity analysis showed through the proposed fund raising exercise, both EPS and book value would be enhanced. EPS could potentially increase between by 14% and 10% respectively for the two case scenarios in FY11, while the book value is projected to increase around 5.3%," it said.
The research house said that looking at EON Cap's loan loss coverage, it stood at 86.1% end-December 2009 which turned out to be below HLBB's 123.5%.
"Possibilities for EON Cap's loan loss coverage to be alleviated above 100% cannot be ruled out. Should this happen, we are looking at a one-off provision of RM164.5 million.
"Also, we expect a slight dilution to the ROE close to 1 percentage from the enhancement of book value/share," it said.
Inter-Pacific Research said the merger would augur well for HLBB due to: (1) achieves greater economic of scale which is vital to be competitive; (2) larger distribution network, stronger products and services, and rolling out of more innovative and competitive products; (3) large and diversified fund base which will provide more flexibility to support the business; and (4) wider range of talented people and skills.
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