News Hong
Leong Bank (“HLBANK”) is considering to raise its shareholding in its China
subsidiary, Bank of Chengdu Co Ltd (“BOC”), through an initial public offering
(IPO), said its CEO, Datuk Yvonne Chia.
BOC, a Sichuan-based
city commercial bank, is planning an IPO on the Shanghai Stock Exchange A-share
market as it moves to replenish its capital to boost future growth. The IPO aims to issue 800m shares. The cash
proceeds will help raise BOC's capitaladequacy ratio (CAR), which has declined
on the back of its strong growth in 2010.
Comments We
understand from management that HLBANK would like maintain its 20% stake in BOC
post IPO. CBRC has a policy that caps
single foreign bank ownership at below 20% (19.99%). Hence, any rise in the
stake will probably need CBRC approval and hence, is an unlikely move for
HLBANK at this juncture.
The listing
application has been sent to the regulatory authorities. However, the timeline
of the listing is unknown as it may take a year or two for final approvals.
We believe HLBANK has
the financial capabilities with an excess capital of RM2.0b-4.4b, and hence has
the extra funds for further investment in BOC.
We believe BOC will
offer a long term growth story for HLBANK given that Chengdu is located at the
centre of Sichuan.
Sichuan is the
powerhouse of China’s southwest and has gained increased attention since the implementation
of the “Go West” policy back in 2000.
Sichuan (including Chongqing) has a total market of some
120m people, the same size as France and 4.2x bigger than that of
Malaysia.
The province has
benefited from lower operating costs compared to the eastern and central regions,
with the added attraction of a massive population.
Outlook Outlook for BOC is positive. At this juncture, BOC has contributed 10-12%
to HLBANK’s PBT.
Forecast No
earnings impact at this juncture.
Rating MAINTAIN MARKET PERFORM
Valuation We
are maintaining our TP at RM10.90 with an unchanged valuation of 1.7x FY13 BV
of RM6.42.
Risks An
unexpected higher dividend payout could drive up the valuation.
Source: Kenanga
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