Stock Name: HLBANK
Company Name: HONG LEONG BANK BHD
Research House: AMMB
Hong Leong Bank Bhd
(March 23, RM9.39)
Maintain buy at RM9.34 with fair value RM11.20: Hong Leong Bank (HLBB) was decidedly more cautious in our recent company visit, citing external uncertainties. Its recent loan utilisation in January-February 2011 was weaker compared with November-December 2010.
This may be due to seasonal effects arising from the Chinese New Year holidays, but with the latest uncertainties arising from the Middle East and Japan, it has not seen a significant pick-up in utilisation of working capital loans in recent weeks. Nevertheless, the company concedes that any possible slowdown is likely in terms of growth rather than risk in higher impaired loans.
HLBB has not seen a major impact on the mortgage segment arising from Bank Negara Malaysia limiting the loan-to-value (LTV) for third mortgages and above to 70%, which was implemented in November 2010. The company has now initiated a new sales channel, roping in its related company's insurance sales force for mortgage sales. We understand the response so far has been positive.
As for non-interest income, HLBB has recruited a new head of treasury to replace the loss of key personnel in the treasury department. It has also recruited new heads of transactional banking and private banking as part of its key strategy to build non-interest income.
We understand HLBB's 20%-owned associate Bank of Chengdu Co Ltd is on track for strong earnings growth for FY11F. Asset quality has remained top-notch while return on equity is estimated to have exceeded 15%, for its FY10E. Bank of Chengdu's contribution has now risen to 12.4% of the group's overall pre-tax profit in 2QFY11, from 11.6% in 1QFY11. Bank of Chengdu has now expanded to three cities out of the immediate Chengdu province, Chongging, Xian and Kunming.
The group has identified several key strategic priorities in the next 12 months: (i) Re-assert its liquidity franchise to build volume for scale and future-proof its business lines; (ii) Focus on the efficiency of delivery, productivity and IT effectiveness; (iii) Re-invent the branch banking strategy and deepen customer relationships; (iv) Build new segments and fee income; (v) Support expansion, transformation and growth of its regional platforms to secure future options by building new banks in new regional markets.
HLBB's aspiration is now to build a strong regional business. We remain positive ' maintain 'buy'. ' AmResearch, March 23
This article appeared in The Edge Financial Daily, March 24, 2011.
Company Name: HONG LEONG BANK BHD
Research House: AMMB
Hong Leong Bank Bhd
(March 23, RM9.39)
Maintain buy at RM9.34 with fair value RM11.20: Hong Leong Bank (HLBB) was decidedly more cautious in our recent company visit, citing external uncertainties. Its recent loan utilisation in January-February 2011 was weaker compared with November-December 2010.
This may be due to seasonal effects arising from the Chinese New Year holidays, but with the latest uncertainties arising from the Middle East and Japan, it has not seen a significant pick-up in utilisation of working capital loans in recent weeks. Nevertheless, the company concedes that any possible slowdown is likely in terms of growth rather than risk in higher impaired loans.
HLBB has not seen a major impact on the mortgage segment arising from Bank Negara Malaysia limiting the loan-to-value (LTV) for third mortgages and above to 70%, which was implemented in November 2010. The company has now initiated a new sales channel, roping in its related company's insurance sales force for mortgage sales. We understand the response so far has been positive.
As for non-interest income, HLBB has recruited a new head of treasury to replace the loss of key personnel in the treasury department. It has also recruited new heads of transactional banking and private banking as part of its key strategy to build non-interest income.
We understand HLBB's 20%-owned associate Bank of Chengdu Co Ltd is on track for strong earnings growth for FY11F. Asset quality has remained top-notch while return on equity is estimated to have exceeded 15%, for its FY10E. Bank of Chengdu's contribution has now risen to 12.4% of the group's overall pre-tax profit in 2QFY11, from 11.6% in 1QFY11. Bank of Chengdu has now expanded to three cities out of the immediate Chengdu province, Chongging, Xian and Kunming.
The group has identified several key strategic priorities in the next 12 months: (i) Re-assert its liquidity franchise to build volume for scale and future-proof its business lines; (ii) Focus on the efficiency of delivery, productivity and IT effectiveness; (iii) Re-invent the branch banking strategy and deepen customer relationships; (iv) Build new segments and fee income; (v) Support expansion, transformation and growth of its regional platforms to secure future options by building new banks in new regional markets.
HLBB's aspiration is now to build a strong regional business. We remain positive ' maintain 'buy'. ' AmResearch, March 23
This article appeared in The Edge Financial Daily, March 24, 2011.
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