The group reported FY12 results that were largely in line with both consensus and our full-year forecasts. The group is poised to capitalize on longer-term growth opportunities, thanks to its larger post-merger organizational footprint. However, the slowing economic environment in the medium term and HLBank’s relatively conservative culture could cap any immediate-term revenue upside synergies, which is already reflected in its lower-than-expected loans and transactional fee income growth. Rolling forward our valuation to FY13, we raise our FV from RM12.54 to RM14.57 (2.1x FY13 PBV, ROE: 15.8%).
In line. HLBank’s FY12 earnings were largely in line with both consensus and our forecasts, representing 99.7% and 98.8% of the respective full-year estimates. Excluding the lumpy RM114.6m one-off VSS cost and RM2.6m initial integration cost recognized in FY12, core earnings on a proforma comparison (i.e. assuming full contribution from EON Cap for FY11 period) grew 14.9% y-o-y, largely attributed to a 50% y-o-y decline in credit cost as a result of strong NPL recovery and well-managed NPLs coupled with improved operational cost efficiencies. Excluding the one-off VSS and integration cost, the group’s cost to income ratio improved to 44.9% in FY12 vs 46.1% in FY11, largely driven by merger Year 1 merger synergies amounting to RM200m.
Weakness in sequential performance. 4QFY12 net profit declined 15% q-o-q, weight down by 12bps q-o-q decline in NIMs and marked to market losses on financial derivative instruments of RM30.1m in 4Q12 vs a RM19.1m gain in 3Q12. As such, pre-provision operating profit declined 12.5% q-o-q. Provisions increased 173% q-o-q but were largely driven largely from higher collective assessment as a result of pick up in sequential loans growth momentum. With absolute gross impaired loans declining 10.9% q-o-q, the increase in collective assessment helped raise provision covers from 149% to 158% q-o-q.
Loans growth recovers but remains below industry trends. The group registered a sequential recovery in loans growth (+3.4% q-o-q) vs 3Q12’s 0.9% q-o-q growth. However, despite the 4Q pick up, full year loans growth of 7.8% remains well below industry’s growth of 11%. Mortgages and Business loans performed favourably registering growth of 9.3% and 13.7% respectively, while auto loans as largely expected was rather uninspiring at 0.8%. One of the key focuses of its revenue synergy targets is greater emphasis on business and SME banking, with the allocation of up to 51 dedicated business banking branches.
To benefit from lower collective allowance. Similar to Public Bank, HLBank is likely to benefit from lower levels of collective allowance (CA) provisioning upon the full adoption of FRS139, given the group’s excess loans loss cover of over 158% and second lowest NPL ratio in the industry after Public Bank. With its current collective assessment provisioning hovering at the 2.1% level, which is significantly above Public Bank’s post-FRS139 0.8% level, there is certainly significant scope to reduce its CA closer to the 1.2% to 1.0% level. Based on our calculations, a move towards 1.2% to 1.0% for CA vs its current 2.1% level could give rise to a one-off excess CA write-back of RM794m to RM975m before tax and RM595m to RM731m after tax, which could translate into a 61bps-to-75bps incremental increase to its Tier 1 capital ratios. In terms of positive earnings impact from lower recurring CA, we estimate that a 10-bps reduction will equate a 0.4% earnings enhancement on our FY13 estimates. As such, a 1.2% to 1.0% CA provisioning requirement post-FRS139 could imply a 4.2% to 5.2% earnings enhancement on our FY13 estimates.
Overall asset quality metrics remain firm. In terms of key asset quality metrics, the group fared relatively well in: (i) raising the loans loss coverage to 158% from 149% in 3Q12, and (ii) managing its credit quality well despite inheriting a lower credit quality EON Cap portfolio as reflected in the impressive 10.9% q-o-q decline in absolute impaired loans, which resulted in a further improvement in the gross impaired loans ratio to 1.7% from 3Q12’s 2.0%.
Source: OSK
No comments:
Post a Comment