- We maintain our HOLD rating on Hong Leong Bank Bhd (HLBB) with an unchanged fair value of RM14.30/share, assuming a rights issue of RM2.3bil. This leads to an estimated fully-diluted ROE of 11.9% for FY16F, leading to an unchanged fair P/BV of 1.5x FY16F.
- HLBB’s annualised 3QFY15 net earnings was 1.2% below our forecast and 4.2% below consensus’ net earnings estimate. The 9M results made up 74.8% of our and 72.5% of consensus forecasts, respectively, for FY15F.
- Annualised loans growth came in at 8%, which is in line with expectations. However, NIM had fallen though, below the 2.00% level, to 1.92% in 3QFY15.
- This signifies a 12bps QoQ reduction, from 2.04% in 2QFY15. The company has earlier articulated a minimum NIM target of 2.00% for FY15. The NIM compression was attributed to intensified competition for deposits, in line with industry peers.
- Non-interest income increased 12.4% QoQ, largely backed by the higher investment and trading income line, indicating that the company’s treasury operations had continued to perform well. Otherwise, the core fee income line remained subdued, recording a decline of 12.3% QoQ.
- We estimate that the fully loaded bank CET1 ratio to be lower on a sequential basis, at 7.72% in 3QFY15, compared to 8.12% in 2QFY15.
- This increases the potential size of the rights issue to around RM2.8bil, from our earlier estimated RM2.3bil, which was based on the earlier quarter’s CET1 ratio.
- This may involve a potential rights issue of 251mil (previously 209mil) new shares on a 1-for-7 (previously 1- for-9) share basis, assuming the rights shares are priced at a 20% discount to the current market price, or about RM11.20/share.
- The latest results are positive in terms of HLBB’s ongoing excellent asset quality. Otherwise, annualised loans growth of 8% is within expectations, but not the weakerthan- expected NIM, in our view. The other revenue line – core fee income – remained subdued. This reinforces the company’s earlier hints that it is still in the early stages of its revenue initiatives, which are expected to have a significant impact only in the longer term. The other thing to note is of course, a possibly larger rights issue based on the latest quarterly capital ratios. Maintain HOLD.
Source: AmeSecurities Research - 28 May 2015
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