Friday, 16 November 2012

HDBSVR maintains Buy on HL Bank, TP RM17

Friday November 16, 2012 MYT 8:46:00 AM

KUALA LUMPUR: Hwang DBS Vickers Research (HDSBVR) is maintaining a Buy on Hong Leong Bank and a target price of RM17.
“This is based on the Gordon Growth Model (16% ROE, 5% growth and 10% cost of equity) and implies 2.3 times CY13 book value,” it said on Friday.
HDBSVR said HL Bank remains one of its top Buys despite share price already rising by 33% year-to-date.
It believes there is still value in extracting synergies from the rejuvenated business banking platform post merger with EON Cap.
HDBSVR said the bank's net interest income was weaker on-quarter as net interest income fell, albeit less than in the previous two quarters.
“Loan and deposit growth were subdued, with loans expanding only 1.3% q-o-q (led by mortgage) while deposits inched up 0.3%. Loan-to-deposit ratio at 73% is still the lowest among peers. Non-interest income was boosted by trading income from treasury operations.
“Excluding one-off items (EON Cap merger) in 4QFY12, expenses and cost-to-income ratio (44%) were stable in 1QFY13. Operating profit was lifted by lower collective allowance (CA) charge following the adoption of MFRS139, coupled with loan recoveries,” it said.
HDBSVR said excluding one-off adjustments for MFRS139, provisions were a mere RM4mil. Share of profit from Bank of Chengdu was 10% of pretax profit, within its expectation. Capital remains strong with Tier-1 and RWCAR (bank level) at 11.7% and 14.0%, respectively.
“We believe it is a good strategy to keep balance sheet liquid in a competitive operating environment but this may cause NIM to remain under pressure as excess liquidity which is typically placed in the interbank market carries lower yields. We are retaining our loan and deposit growth assumptions of 11% and 9%, which implies 73% loan-to-deposit ratio,” said the research house.

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