Stock Name: EONCAP
Company Name: EON CAPITAL BHD
Research House: MAYBANK
EON Capital Bhd (EONCap)
(May 24, RM6.90)
Maintain hold at RM6.92 with higher target price of RM7.80: EONCap's RM98 million 1Q10 net profit (+23% year-on-year, +59% quarter-on-quarter) was 30% of our full-year forecast, and 26% of consensus'.
The provision for loan impairment loss was lower than expected after the switch to FRS 139. Also, operational expenditure (opex) growth moderated. We raise our 2010 forecast by 20%, 2011-2012 forecast by 15%-19% per annum, and the discounted dividend model-based (DDM) target price to RM7.80. Hold, with just a 5% upside to Hong Leong Bank's implied RM7.30 offer price for its assets, which we think is low, without a takeover premium.
EONCap's operating income rose 13% y-o-y and 3% q-o-q on continued loans growth, and higher fee and investment income. Net interest margin was stable q-o-q at 2.7% but rose six basis points (bps) y-o-y, we estimate. The growth in opex moderated, and is expected to taper off further after 2009's infrastructure upgrading exercise.
The FRS 139 implementation resulted in a lower provision for loan impairment loss of RM42 million versus RM54 million under GP3. 1Q10 net profit growth of 23% y-o-y is commendable as 'business continued as usual' despite 'disruptions' at the shareholding level.
Gross loans grew 9.5% (annualised) mainly in the SME and residential property segments. Customer deposits rose an annualised 13.2% with the current account savings account (CASA) ratio remaining stable at 22.6%. FRS 139 resulted in a one-off RM35 million charge to the retained profits lowering book value (BV) per share by five sen, and a RM177 million addition to the gross impaired loans account. The gross impaired loans ratio was 4.23% (Dec 09: 3.79% under GP3) while loan loss coverage was 82.6% (Dec 2009: 84.9%). Capital ratios stayed well at 10.8% (Tier 1) and 14.9% (RWCR).
EONCap's loan pipeline stayed strong and we raise our 2010 loan growth forecast to 12% from 8%, expecting the year-to-date growth to be sustainable. Also, we lower our opex growth for 2010 to 8% from 12%. The provision for loan impairment loss is lowered based on a 50bps charge versus 60bps previously. As a result, our net profit forecast is upgraded by 20% for 2010, and 15%-19% for 2011-2012. We now project EONCap to deliver a 14% net profit growth in 2010 and an ROE (return on equity) of 10.4%. This is still behind the internal target of above 11% for the year.
Despite the opinion from independent financial adviser Credit Suisse Securities (Malaysia) Sdn Bhd that the RM5.06 billion offer price by Hong Leong Bank for EONCap's assets and liabilities is not fair, EONCap's board of directors has decided to put the offer to a shareholders' vote as it wants to resolve the matter the soonest so as not to erode EONCap's franchise value.
EONCap will also table a proposal for the RM5.06 billion cash proceeds to be distributed back to EONCap's shareholders via a special dividend and capital repayment. The date of the shareholders' EGM has not been announced. ' Maybank IB Research, May 24
This article appeared in The Edge Financial Daily, May 25, 2010.
Company Name: EON CAPITAL BHD
Research House: MAYBANK
EON Capital Bhd (EONCap)
(May 24, RM6.90)
Maintain hold at RM6.92 with higher target price of RM7.80: EONCap's RM98 million 1Q10 net profit (+23% year-on-year, +59% quarter-on-quarter) was 30% of our full-year forecast, and 26% of consensus'.
The provision for loan impairment loss was lower than expected after the switch to FRS 139. Also, operational expenditure (opex) growth moderated. We raise our 2010 forecast by 20%, 2011-2012 forecast by 15%-19% per annum, and the discounted dividend model-based (DDM) target price to RM7.80. Hold, with just a 5% upside to Hong Leong Bank's implied RM7.30 offer price for its assets, which we think is low, without a takeover premium.
EONCap's operating income rose 13% y-o-y and 3% q-o-q on continued loans growth, and higher fee and investment income. Net interest margin was stable q-o-q at 2.7% but rose six basis points (bps) y-o-y, we estimate. The growth in opex moderated, and is expected to taper off further after 2009's infrastructure upgrading exercise.
The FRS 139 implementation resulted in a lower provision for loan impairment loss of RM42 million versus RM54 million under GP3. 1Q10 net profit growth of 23% y-o-y is commendable as 'business continued as usual' despite 'disruptions' at the shareholding level.
Gross loans grew 9.5% (annualised) mainly in the SME and residential property segments. Customer deposits rose an annualised 13.2% with the current account savings account (CASA) ratio remaining stable at 22.6%. FRS 139 resulted in a one-off RM35 million charge to the retained profits lowering book value (BV) per share by five sen, and a RM177 million addition to the gross impaired loans account. The gross impaired loans ratio was 4.23% (Dec 09: 3.79% under GP3) while loan loss coverage was 82.6% (Dec 2009: 84.9%). Capital ratios stayed well at 10.8% (Tier 1) and 14.9% (RWCR).
EONCap's loan pipeline stayed strong and we raise our 2010 loan growth forecast to 12% from 8%, expecting the year-to-date growth to be sustainable. Also, we lower our opex growth for 2010 to 8% from 12%. The provision for loan impairment loss is lowered based on a 50bps charge versus 60bps previously. As a result, our net profit forecast is upgraded by 20% for 2010, and 15%-19% for 2011-2012. We now project EONCap to deliver a 14% net profit growth in 2010 and an ROE (return on equity) of 10.4%. This is still behind the internal target of above 11% for the year.
Despite the opinion from independent financial adviser Credit Suisse Securities (Malaysia) Sdn Bhd that the RM5.06 billion offer price by Hong Leong Bank for EONCap's assets and liabilities is not fair, EONCap's board of directors has decided to put the offer to a shareholders' vote as it wants to resolve the matter the soonest so as not to erode EONCap's franchise value.
EONCap will also table a proposal for the RM5.06 billion cash proceeds to be distributed back to EONCap's shareholders via a special dividend and capital repayment. The date of the shareholders' EGM has not been announced. ' Maybank IB Research, May 24
This article appeared in The Edge Financial Daily, May 25, 2010.
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