Stock Name: HLBANK
Company Name: HONG LEONG BANK BHD
Research House: AMMB
Hong Leong Bank Bhd
(May 10, RM11.50)
Maintain buy at RM11.20 with revised fair value of RM14.70 (from RM13.80): We maintain our 'buy' rating on Hong Leong Bank Bhd (HLBB), with a higher fair value of RM14.70 (from RM13.80). This reflects the full merger with EON Capital Bhd's (EONCap) assets and liabilities by FY12F based on our sensitivity analysis. This is based on price-to-book value of 2.4 times and 2012 return on equity (ROE) of 16.1% under the merged entity.
HLBB hosted an analysts' briefing on its takeover of EONCap's assets and liabilities, together with the management of EONCap. The takeover was deemed completed on May 6, 2011, with vesting date targeted for July 1, 2011.
Essentially, the merged entity will become the fourth largest domestic banking group in Malaysia, with estimated assets of RM141 billion, after third-placed Public Bank Bhd's RM226 billion. This places it slightly ahead of'' RHB Capital Bhd's RM129 billion.
HLBB has provided some estimates of the direct synergy costs, which would total RM400 million over the next three years based on its preliminary assessment.
These are split almost equally between revenue and cost synergies. The company expects most of the cost synergies to be realised up front, but also hinted that revenue synergies will likely be expanded once the merged entity is fully integrated.
More importantly, the company also provided an indication on return on equity estimates. Notably, HLBB's ROE estimate for Year 1 from merger is 17%, higher than our estimated 15.5% base in our sensitivity analysis that we had highlighted in our earlier reports.
On the timeline of further announcements on its proposed rights issue, HLBB has hinted that this will likely be within the next 60 to 90 days. We believe this will be targeted closer to the vesting date of July 1, 2011.
Given that the company has yet to provide further clarity on details of the rights issue, we are still assuming a RM1.6 billion rights issue, as per the company's indications more than a year ago.
Our fair value is based on our sensitivity analysis on the impact of the merger, assuming that HLBB will undertake a rights issue of RM1.6 billion, at a rights price of RM8.70 per share. We have now revised this to include conservatively merger synergies of RM120 million and integration costs of RM60 million in the first year. Our fair value is now upgraded to RM14.70 from RM13.80, based on higher ROE of 16.1% (from 15.5% previously). ' AmResearch, May 10
This article appeared in The Edge Financial Daily, May 11, 2011.
Company Name: HONG LEONG BANK BHD
Research House: AMMB
Hong Leong Bank Bhd
(May 10, RM11.50)
Maintain buy at RM11.20 with revised fair value of RM14.70 (from RM13.80): We maintain our 'buy' rating on Hong Leong Bank Bhd (HLBB), with a higher fair value of RM14.70 (from RM13.80). This reflects the full merger with EON Capital Bhd's (EONCap) assets and liabilities by FY12F based on our sensitivity analysis. This is based on price-to-book value of 2.4 times and 2012 return on equity (ROE) of 16.1% under the merged entity.
HLBB hosted an analysts' briefing on its takeover of EONCap's assets and liabilities, together with the management of EONCap. The takeover was deemed completed on May 6, 2011, with vesting date targeted for July 1, 2011.
Essentially, the merged entity will become the fourth largest domestic banking group in Malaysia, with estimated assets of RM141 billion, after third-placed Public Bank Bhd's RM226 billion. This places it slightly ahead of'' RHB Capital Bhd's RM129 billion.
HLBB has provided some estimates of the direct synergy costs, which would total RM400 million over the next three years based on its preliminary assessment.
These are split almost equally between revenue and cost synergies. The company expects most of the cost synergies to be realised up front, but also hinted that revenue synergies will likely be expanded once the merged entity is fully integrated.
More importantly, the company also provided an indication on return on equity estimates. Notably, HLBB's ROE estimate for Year 1 from merger is 17%, higher than our estimated 15.5% base in our sensitivity analysis that we had highlighted in our earlier reports.
On the timeline of further announcements on its proposed rights issue, HLBB has hinted that this will likely be within the next 60 to 90 days. We believe this will be targeted closer to the vesting date of July 1, 2011.
Given that the company has yet to provide further clarity on details of the rights issue, we are still assuming a RM1.6 billion rights issue, as per the company's indications more than a year ago.
Our fair value is based on our sensitivity analysis on the impact of the merger, assuming that HLBB will undertake a rights issue of RM1.6 billion, at a rights price of RM8.70 per share. We have now revised this to include conservatively merger synergies of RM120 million and integration costs of RM60 million in the first year. Our fair value is now upgraded to RM14.70 from RM13.80, based on higher ROE of 16.1% (from 15.5% previously). ' AmResearch, May 10
This article appeared in The Edge Financial Daily, May 11, 2011.
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