Stock Name: HLBANK
Company Name: HONG LEONG BANK BHD
Hong Leong Bank Bhd
(Sept 6, RM12.20)
Maintain buy at RM12.28 with revised target price of RM16 (from RM15): Hong Leong Bank (HLB) will reap strong synergies from the merger with EON Capital Bhd (EONCap) via improved efficiencies, higher net interest margins (NIMs), and larger presence in hire purchase and small and medium enterprises (SMEs). One of the key levers is the business banking unit that focuses on SMEs, which is now more scalable with EONCap's base. HLB now offers strong domestic organic growth coupled with a positive twist in its 20%-associate, Bank of Chengdu, which remains in growth mode in consumer, SME and local corporates, and also continuously building its deposit franchise. HLB's pure commercial banking business offers a defensive play away from volatile market-related income, while its low 8% foreign shareholding (as at June this year) will shield it from a major selldown in times of deleveraging.
Our FY12 to FY14 earnings estimates now consolidate EONCap's numbers. As an enlarged entity, we imputed 11% and 9% loan and deposit growth over FY12 to FY14F. NIMs will trend up in FY12 with the full consolidation of EONCap's higher yielding loans (only two months consolidation in FY11). Subsequently, NIMs should trend down due to competitive pressure. Our forecasts assume 20% discount for the rights issue, implying post-rights return on equity (ROE) should hover at 16%. Completion of the rights issue will restore Tier-1 capital adequacy ratio (CAR) and risk-weighted CAR (group) to 10% and 16% respectively. The pricing of its RM2.6 billion rights issue should be out by next week.
We remain positive on HLB. Our revised target price, which is equivalent to 2.4 times CY12 book value, is based on the Gordon Growth Model with the following assumptions: 16% ROE, 5% long-term growth and 9.4% cost of equity. ' HwangDBS Vickers Research, Sept 6
This article appeared in The Edge Financial Daily, September 7, 2011.
Company Name: HONG LEONG BANK BHD
| Research House: HWANGDBS | Price Call: BUY | Target Price: 16.00 |
Hong Leong Bank Bhd
(Sept 6, RM12.20)
Maintain buy at RM12.28 with revised target price of RM16 (from RM15): Hong Leong Bank (HLB) will reap strong synergies from the merger with EON Capital Bhd (EONCap) via improved efficiencies, higher net interest margins (NIMs), and larger presence in hire purchase and small and medium enterprises (SMEs). One of the key levers is the business banking unit that focuses on SMEs, which is now more scalable with EONCap's base. HLB now offers strong domestic organic growth coupled with a positive twist in its 20%-associate, Bank of Chengdu, which remains in growth mode in consumer, SME and local corporates, and also continuously building its deposit franchise. HLB's pure commercial banking business offers a defensive play away from volatile market-related income, while its low 8% foreign shareholding (as at June this year) will shield it from a major selldown in times of deleveraging.
Our FY12 to FY14 earnings estimates now consolidate EONCap's numbers. As an enlarged entity, we imputed 11% and 9% loan and deposit growth over FY12 to FY14F. NIMs will trend up in FY12 with the full consolidation of EONCap's higher yielding loans (only two months consolidation in FY11). Subsequently, NIMs should trend down due to competitive pressure. Our forecasts assume 20% discount for the rights issue, implying post-rights return on equity (ROE) should hover at 16%. Completion of the rights issue will restore Tier-1 capital adequacy ratio (CAR) and risk-weighted CAR (group) to 10% and 16% respectively. The pricing of its RM2.6 billion rights issue should be out by next week.
We remain positive on HLB. Our revised target price, which is equivalent to 2.4 times CY12 book value, is based on the Gordon Growth Model with the following assumptions: 16% ROE, 5% long-term growth and 9.4% cost of equity. ' HwangDBS Vickers Research, Sept 6
This article appeared in The Edge Financial Daily, September 7, 2011.
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