HONG Leong Bank Bhd (HLB), which is now the country's fourth largest banking group following its merger with EON Capital Bhd, is expected to continue reaping synergies from the merger.
In a report initiating coverage on the bank, Alliance Research said it believed that the market had not fully priced in the potential synergistic benefits from the merger.
“We are positive that the expanded scale, broadened network and the complementary business models and customer base between standalone Hong Leong Bank and EON Cap could allow the merged entity to venture in or strengthen the previously under-penetrated market segments.
“The merger allows us to extend market breadth and depth, and enhance the return of asset through cross selling of more diversified product offerings to its enlarged customer base,” it said.
The group's recently announced first-quarter results shows that it is on track to meet its core return on equity target of 16.7%.
Being a bank and therefore, the closest proxy to the local economy, HLB is poised to be a beneficiary of the country's ongoing pump-priming and is therefore relatively shielded from external shocks.
Alliance Research which fairly values the group at RM14.34 notes HLB's relatively low foreign shareholdings of 7.7% as of September 2011, which implies strong upside potential once it is re-rated by foreign investors.
By Yvonne Tan, thestar.com.my
● The comments above do not represent a recommendation to buy or sell.
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