Stock Name: EONCAP
Company Name: EON CAPITAL BHD
Research House: OSK
EON Capital Bhd
(March 1, RM7.10)
Maintain neutral at RM7.14 with target price of RM7.30: EONCap's FY10 results were in line with consensus' full-year forecast but 6.5% below ours. The key drag on earnings in 4QFY10 was a 266.1% quarter-on-quarter spike in loan-loss provision, which resulted in a 26.9% q-o-q decline in 4QFY10 earnings.
However, the group still managed to register a full-year FY10 earnings growth of 29% despite a 38.% year-on-year (y-o-y) jump in full-year provisions due to a 15.4% climb in net interest income, a 16.5% growth in Islamic banking earnings, a 811% surge in trading profit, largely, from the sale of available-for-sale assets and a 14.6% increase in transactional banking fee income.
Effective operating cost containment efforts have also helped to bring down the cost-to-income ratio to 46.2% against 63.5% in FY09.
The group's FY10 loan growth was a commendable 14.4% y-o-y, ahead of our estimates of 12% but in line with management's targeted 14% growth as 4QFY10 loan growth traction gained significant momentum (+4.1% q-o-q).
By loan segment, although business loans and small and medium business loans expanded by 12.5% y-o-y, the consumer segment, in particular mortgages, was the key driver. Hire purchase (HP) grew at a more subdued 6.8% y-o-y as the group sought to rebalance its loan portfolio away from HP.
Absolute gross impaired loans rose 7.3% q-o-q with higher impaired loans within the HP and working capital loan segment. The group's exposure to collateralised loan obligation, which expired in September 2010, and the reclassification of RM107.5 million in previously restructured accounts as impaired under the FRS139 guidelines resulted in an increase in impaired loans.
Consequently, the higher provisions for the above-mentioned accounts pushed up credit costs by nine basis points (bps) to 68bps for FY10. However, despite the higher provisions, impaired loan loss coverage ratio dipped marginally to 89.6% from 90.1% q-o-q.
We have tweaked downwards our FY11 and FY12 earnings estimates by 5.3% and 2.7% respectively to account for the higher credit cost at 56bps and 52bps respectively. ' OSK Research, March 1
This article appeared in The Edge Financial Daily, March 2, 2011.
Company Name: EON CAPITAL BHD
Research House: OSK
EON Capital Bhd
(March 1, RM7.10)
Maintain neutral at RM7.14 with target price of RM7.30: EONCap's FY10 results were in line with consensus' full-year forecast but 6.5% below ours. The key drag on earnings in 4QFY10 was a 266.1% quarter-on-quarter spike in loan-loss provision, which resulted in a 26.9% q-o-q decline in 4QFY10 earnings.
However, the group still managed to register a full-year FY10 earnings growth of 29% despite a 38.% year-on-year (y-o-y) jump in full-year provisions due to a 15.4% climb in net interest income, a 16.5% growth in Islamic banking earnings, a 811% surge in trading profit, largely, from the sale of available-for-sale assets and a 14.6% increase in transactional banking fee income.
Effective operating cost containment efforts have also helped to bring down the cost-to-income ratio to 46.2% against 63.5% in FY09.
The group's FY10 loan growth was a commendable 14.4% y-o-y, ahead of our estimates of 12% but in line with management's targeted 14% growth as 4QFY10 loan growth traction gained significant momentum (+4.1% q-o-q).
By loan segment, although business loans and small and medium business loans expanded by 12.5% y-o-y, the consumer segment, in particular mortgages, was the key driver. Hire purchase (HP) grew at a more subdued 6.8% y-o-y as the group sought to rebalance its loan portfolio away from HP.
Absolute gross impaired loans rose 7.3% q-o-q with higher impaired loans within the HP and working capital loan segment. The group's exposure to collateralised loan obligation, which expired in September 2010, and the reclassification of RM107.5 million in previously restructured accounts as impaired under the FRS139 guidelines resulted in an increase in impaired loans.
Consequently, the higher provisions for the above-mentioned accounts pushed up credit costs by nine basis points (bps) to 68bps for FY10. However, despite the higher provisions, impaired loan loss coverage ratio dipped marginally to 89.6% from 90.1% q-o-q.
We have tweaked downwards our FY11 and FY12 earnings estimates by 5.3% and 2.7% respectively to account for the higher credit cost at 56bps and 52bps respectively. ' OSK Research, March 1
This article appeared in The Edge Financial Daily, March 2, 2011.
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