- We maintain our HOLD rating on Hong Leong Bank Bhd (HLBB) with a slightly higher fair value of RM11.70/share (from RM11.60/share previously). Our fair value is fully diluted for its proposed rights issue. This is based on a fully-diluted ROE of 10.8% (previously 10.9%) for FY16F, leading to an unchanged fair P/BV of 1.2x. The change is due to a minor reduction in the number of rights issue.
- HLBB announced that its rights issue price has been fixed at RM10.40/share, slightly higher than the earlier illustrative rights price of RM10.00 as per its circular dated 1 September 2015.
- The company said the rights issue price of RM10.40 represents a discount of approximately 22.7% to the theoretical ex-rights price of RM13.45, which was calculated based on the five-day volume-weighted average market price of HLBB shares up to and including 22 October 2015 of RM14.20 and after adjusting for the final single-tier dividend per HLB share of 26 sen.
- The entitlement basis has been fixed at 4 rights shares for every 25 existing HLBB shares. This works out to be 1 right share for every 6.25 HLBB shares. This is slightly different from the earlier indicated 1 right share for every 6 HLBB shares held.
- The company said that, based on 1,798,8mil HLBB shares in issue (excluding treasury shares), the rights issue will result in the issuance of 287.8mil new HLBB shares. This is slightly lower than the previously indicated illustrative proposed number of rights of 299.8mil shares.
- The rights issue is expected to raise total gross proceeds of approximately RM2,993.2mil, slightly lower than previously indicated RM2,998mil.
- We have adjusted our earnings model accordingly. There are no major changes to our ROE and fair value estimates. Our book value estimate is amended marginally to RM9.48/share from RM9.43/share, for FY16F.
- The announcement and details of the rights issue are within expectations. Maintain HOLD.
Source: AmeSecurities Research - 26 Oct 2015
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