AmResearch has maintained a buy on Hong Leong Bank Bhd (HLBB) with an unchanged fair value of RM10.90 per share following the Finance Ministry’s approval for its proposed acquisition of EON Capital Bhd’s (EONCap) assets and liabilities.
In a report yesterday, AmResearch said the fair value had not yet fully discounted the full extraction of value assuming its proposed takeover of EONCap was successful.
“We believe HLBB remains on track to achieve our net earnings projection of RM934.1 million, which is ahead of consensus’ net earnings of RM929.3 million for FY10,” it said, adding that loans growth target for FY11 was still maintained at 9%-10% FY11.
“Going forward, HLBB will be switching over to FRS139 by the September 2010 quarter. Among local banks, HLBB’s asset quality is number two — in terms of gross NPL ratio at 2.1% as at end-March 2010 (after Public Bank’s 0.9% end-March 2010), while its loan loss cover is number three — at 116.1% as at end-March 2010 (after Public Bank’s 172.3% and Maybank’s 120.5% end-March 2010),” AmResearch said.
Based on latest indications, it said HLBB was unlikely to report vastly different gross impaired loans under FRS139.
“Further, we understand the company is targeting to maintain loan loss cover at around the above type of buffer going forward. This is positive as it implies that loan loss cover may well be maintained at above 100%, even after its switchover to FRS139 later,” it said.
AmResearch has learnt that for HLBB’s 20%-owned associate Bank of Chengdu Co Ltd, there is a cap on loan growth of 22% for its FY10. “But this is in line with our ssumptions of loan growth of 20% for its FY10 and FY11 (estimated PBT contribution is 10% FY10, 9.5% FY11 and 9.9% FY12),” it added.
The research house said HLBB was still targeting to raise RM1.8 billion in qualifying securities and RM1.6 billion rights issue.
Meanwhile, HwangDBS Vickers Research also maintained a buy on HLBB with a target price of RM10.50, given its strong domestic franchise coupled with its China exposure (via its 20% stake in Bank of Chengdu).
It said its hold call on EONCap remained with a fair value pegged to the acquisition price of RM7.30. It said the planned merger between HLBB and EONCap would create Malaysia’s fourth largest bank by asset, elevating HLBB’s loan and deposit market share.
It added that the enlarged scale would give HLBB greater financial muscle to meet its regional player aspirations.
HLBB yesterday rose six sen to RM9.02, with 176,600 shares traded, while EONCap gained seven sen to RM6.97 on a volume of only 2,500 shares.
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