- We maintain our HOLD rating on Hong Leong Bank Bhd (HLBB) with a slightly lower fair value of RM13.20/share (from RM13.30/share previously), based on the recently announced rights issue of RM3.0bil (vs. our previous assumption of RM2.9bil). This leads to a fully diluted ROE of 11.45% (vs. 11.5% previously) for FY16F, and an unchanged fair P/BV of 1.4x for FY16F.

- HLBB has just announced that it is proposing to undertake a renouncement rights issue of new HLBB shares to raise gross proceeds of up to RM3.0bil.

- The rights issue details are in line with our expectations. The total size of the rights issue is in line with our assumption earlier of RM2.9bil.

- The company said the entitlement basis and for the proposed rights issue and the issue price for the rights issue have not been fixed at this juncture to provide flexibility to the board of directors to determine the entitlement basis and the issue price at a later date.

- However, the company indicated that the illustrative rights price is RM10.19/right share, which is close to our earlier assumption of RM10.50/right share.

- The illustrative entitlement basis is assumed to be 9 right shares for every 55 HLB shares held as at the entitlement date, which works out to be 1 right share for every 6.111 HLBB shares. This is close to our earlier assumption of 1 right share for every 6.9 HLBB shares.

- Our fully diluted ROE estimate is now revised to 11.45% (from 11.5%) for FY16F, to reflect the latest announcement. Our net earnings change is marginal at only +0.1% for FY16F.

- The announcement and details of the rights issue are in line with our expectations. Maintain HOLD.

Source: AmeSecurities Research - 13 Aug 2015