- We maintain our HOLD rating on Hong Leong Bank Bhd (HLBB), with an unchanged fair value of RM15.90/share. Our fair value is based on an ROE of 14.5% for FY14F and an unchanged fair P/BV of 2.0x.

-  HLBB provided further clarification on its NIM trend, which recorded a large jump of 12bps QoQ to 2.15% in 3QFY14 from 2.03% in 2QFY14.

-  Out of the total 12bps rise, about 5bps were contributed by the recalibration of the effective interest rate on its fixed rate portfolio, which is reviewed every 3Q of its financial year (a similar exercise at the same time last year brought about contributed to a 8bps QoQ rise in NIM).

-  The other 7bps was largely contributed by better cost management. However, the company cautioned that NIM will likely remain under pressure, and foresees its target to maintain NIM at 2.0% to be a continuous challenge. Nevertheless, we are positive on the latest NIM development.

-  As for credit card fees which had more than halved in this quarter to RM30.8mil in 3QFY14 from 2QFY14’s RM77.1mil, the decline was due to a one-off adjustment to offset credit-card related expenses of RM42.2mil (which is for the full 9M) directly from the fee income revenue in 3Q.

-  Without this one-off adjustment, the company disclosed that credit card fees would have risen by 9% YoY on a 9M basis.

-  Its global markets gained market shares in terms of fixed and forex transactions, but were generally slower due to lower industry volume.

-  The company alluded that customer flows volume continues edge up, although we are not able to detect this in the latest quarterly results in terms of forex gain. Recall that forex gain dropped to RM13.6mil in 3QFY14 from RM55.5mil in 2QFY14.

-  The clarifications had assuaged our earlier concerns somewhat over the soft patches in the non-interest income line in terms of fee income and forex income.

-  Maintain HOLD.

Source: AmeSecurities