- We are maintaining
our HOLD rating on Hong Leong Bank Bhd (HLBB), with a marginal change in fair
value to RM15.80/share (from RM15.90/share previously). Our fair value is based on an ROE of 15.4%
FY13F and an unchanged fair P/BV of 2.2x.
- HLBB managed to
beat expectations in 1QFY13 with annualised net earnings coming in at 2.2%
above our forecast, and 1.9% above consensus net earnings of RM1,873mil.
- HLBB has now
adopted the Malaysian Financial Reporting Standards (FRS 139) for the first
time with effect from this financial quarter. There was a write-back in the
collective assessment amount by RM380mil (our forecast: RM450mil) or
RM0.20/share, with an adjustment in the collective assessment rate (as a
percentage of gross loans less individual assessment allowance carried forward)
(CA rate) to 1.6% from 2.1%. This is in line with our forecast of 1.6%.
- Annualised loans
growth was at 5.4%, lower than the company’s target loans growth of 10% to 12%
for FY13F. This came mainly from a softer working capital segment, attributed
to a reduction in utilisation of trade finance facilities in line with the
generally weaker macro exports trend. NIM did better than expected with a 5bps improvement
QoQ, in contrast to wide expectations of ongoing reduction in NIM. We believe
NIM improvement came from higher LDR utilisation as well as deposit management.
Non-interest income posted a strong growth of 23.7% QoQ in 1QFY13, mainly from
treasury gains.
- Gross impaired
loans declined by 3.3% QoQ in 1QFY13. Gross impaired loans ratio was at 1.6% as
at end-1QFY13, compared with 1.7% in 4QFY12.
- Loan loss cover
remains high, despite the write-back in the collective assessment balance
carried forward, at 134.3% in 1QFY13. This compares to 4QFY12’s 158.2% before FRS139
adjustment, and the restated 133.4% for 4QFY12 post FRS139. There were loan
loss provision write-backs totalling RM14.7mil in 1QFY13, mainly from
continuing good recoveries.
- HLBB’s 1QFY13
surprised in terms of much better-thanexpected loan loss provisions, signalling
that its asset quality remains strong. However, topline growth has slowed down
perceptibly in 1QFY13, although this is probably a reflection of industry
trend.
- We expect HLBB’s
share price to be sustained on further evidence of:- (a) stronger-than-expected
topline loan growth; (b) evidence of revenue synergy for its fee-based income
from its expanded customer base; and (c) continued improvement in asset
quality.
Source: AmeSecurities
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