Saturday, 17 November 2012

Hong Leong Bank - Padding in ahead in 1QFY13 HOLD


-  We are maintaining our HOLD rating on Hong Leong Bank Bhd (HLBB), with a marginal change in fair value to RM15.80/share (from RM15.90/share previously).  Our fair value is based on an ROE of 15.4% FY13F and an unchanged fair P/BV of 2.2x. 

-  HLBB managed to beat expectations in 1QFY13 with annualised net earnings coming in at 2.2% above our forecast, and 1.9% above consensus net earnings of RM1,873mil.

-  HLBB has now adopted the Malaysian Financial Reporting Standards (FRS 139) for the first time with effect from this financial quarter. There was a write-back in the collective assessment amount by RM380mil (our forecast: RM450mil) or RM0.20/share, with an adjustment in the collective assessment rate (as a percentage of gross loans less individual assessment allowance carried forward) (CA rate) to 1.6% from 2.1%. This is in line with our forecast of 1.6%.

-  Annualised loans growth was at 5.4%, lower than the company’s target loans growth of 10% to 12% for FY13F. This came mainly from a softer working capital segment, attributed to a reduction in utilisation of trade finance facilities in line with the generally weaker macro exports trend. NIM did better than expected with a 5bps improvement QoQ, in contrast to wide expectations of ongoing reduction in NIM. We believe NIM improvement came from higher LDR utilisation as well as deposit management. Non-interest income posted a strong growth of 23.7% QoQ in 1QFY13, mainly from treasury gains. 

-  Gross impaired loans declined by 3.3% QoQ in 1QFY13. Gross impaired loans ratio was at 1.6% as at end-1QFY13, compared with 1.7% in 4QFY12. 

-  Loan loss cover remains high, despite the write-back in the collective assessment balance carried forward, at 134.3% in 1QFY13. This compares to 4QFY12’s 158.2% before FRS139 adjustment, and the restated 133.4% for 4QFY12 post FRS139. There were loan loss provision write-backs totalling RM14.7mil in 1QFY13, mainly from continuing good recoveries. 

-  HLBB’s 1QFY13 surprised in terms of much better-than expected loan loss provisions, signalling that its asset quality remains strong. However, topline growth has slowed down perceptibly in 1QFY13, although this is probably a reflection of industry trend. 

-  We expect HLBB’s share price to be sustained on further evidence of:- (a) stronger-than-expected topline loan growth; (b) evidence of revenue synergy for its fee-based income from its expanded customer base; and (c) continued improvement in asset quality.  

Source: AmeSecurities

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