We maintain BUY on Hong Leong Bank Bhd (HLBB), with an
unchanged fair value of RM13.00/share. This is based on an adjusted (for
rights) 14.7% ROE for FY12F, leading to a fair P/BV of 2.1x.
HLBB registered net earnings of RM381mil in 2QFY12, a 6.3%
decline QoQ from RM407mil in 1QFY12. Annualised net earnings are in line with
ours and consensus’ forecasts.
However, we note that 2QFY12 included a one-time provisioning
for a full staff voluntary separation scheme of RM114.7mil. Stripping off this
item, we estimate net earnings to be 17% above our estimate, and 16% above consensus.
Loans growth picked up to an annualised rate of 6.5% in 2QFY12,
from 5.7% in 1QFY11. Loans growth would have been much stronger if not for
lumpy repayments of selected project-related loans. SME loans registered a 6.6%
QoQ rise, or at an annualised rate of 17.7%. Individuals’ loans grew 8.5%
annualised. NIM improved by a robust 9bps QoQ.
Absolute gross impaired loans fell 1.5% QoQ; thus improving
the overall gross impaired loans ratio to 2.0% in 2QFY11 from 2.1% in 1QFY12.
Loan loss cover climbed to 141.9% in 2QFY12 from 137.8% in 1QFY12. The company alluded
that there had been no signs of strains in its loans portfolio, with continuing
improvement seen for its impaired loans.
The company said it has achieved annualised synergies of RM191mil,
exceeding its target of RM180mil. Revenue synergies, although not significant
at this stage, has turned out to be stronger than the company’s expectation.We
believe HLBB’s share price had been affected by share overhang post its rights
issue in October 2011, as well as concerns over Bank of Chengdu and the overall
external uncertainty. At the current share price levels, HLBB is pricing in
credit costs of 84bps, compared with 100bps at the recent low in the past three
months (we have modelled in 70bps). HLBB’s latest results prove that credit
costs are unlikely to be close to 84bps.
We believe HLBB’s 2QFY12 is strong in terms of top line (loans
growth, NIM) as well as well-executed merger synergies. We remain positive on
HLBB. Key catalysts for HLBB are:- (a) stronger-than-expected top line growth;
(b) sustained asset quality, (c) seamless integration in its merger with EON
Bank; (d) better-than-expected ROE of close to its internal target of 16% to
17%.
Source: AmeSecurities
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