News      Hong Leong Bank (“HLBANK”) announced that Datuk Yvonne Chia, Group Managing Director/Chief Executive Officer will retire effective 30 June 2013.

After serving as CEO for more than 10 years, she has led the transformation and growth of HLBANK into one of the most successful banks in the financial industry.

Comments    Under her leadership, Datuk Yvonne has guided HLBANK through an incredible period of change and growth and has done so with utmost integrity and a sharp focus on creating value for shareholders over last five years.

However, we do not expect the announced of Datuk Yvonne retirement to result in any changes in HLBANK's operating strategy. First, the management team largely remains unchanged after that, and secondly, Tan Sri Quek Leng Chan will continue to serve as Chairman who has been contributing to most of the strategic decisions that made during the past 30 years.

Outlook      Given its more challenging outlook as well as the already strong share price performance of the stock since 2012, we believe that the market has already priced in the group’s merger synergies at the current stock valuation of near to 2.0x FY13 BV (+1SD from the mean).

Although the fundamentals of HLBANK are still good, its valuations are, however, not attractive at this juncture.

The stock’s recent performance could have fully priced in the integration synergies (on revenue and cost), in our view.

Forecast     There are no changes to our earnings estimates.

Rating    MAINTAIN MARKET PERFORM

At the current share price level, the stock only offers a 5.1% upside to our target price. Together with the projected dividend yield of 2.6%, the stock offers less than a 10% total return and hence, we are maintaining our MARKET PERFORM rating.

Valuation     Our TP is maintained at RM15.20, representing a 2.0x valuation of its FY14 BV of RM7.65.

Risks     An unexpected higher dividend payout could drive up the valuation.

Source: Kenanga