STOCK FOCUS OF THE DAY
Hong Leong Bank : Buffer plans for treasury
shares HOLD
We downgrade Hong Leong Bank Bhd (HLBB) to HOLD, with a
lower fair value of RM14.30/share (vs. RM17.00/share earlier). We have rolled
forward our base year to FY16F from FY15F, and at the same time, assumed the
impact of a rights issue of RM2.3bil. This leads to an estimated fully-diluted
ROE of 11.9% for FY16F (previously 14.1% FY15F) and a lower fair P/BV of 1.5x
FY16F (previously 1.9x FY15F). Based on HLBB’s latest fully-loaded bank CET1
ratio, we estimate the potential rights issue to be around RM2.3bil, involving
a possible 1-for-9 basis rights issue, assuming the rights issue is priced at
about 20% discount to the market price, or RM11.20/rights share.
At our recent company visit, the company continues to affirm
that there are no plans to utilise its treasury shares to reduce the size of
its potential capital raising later. The company reiterated that these treasury
shares are to be set aside for general buffer purposes. Recall that we had
estimated earlier that these 81.1mil treasury shares to be worth RM1.15bil,
which is essentially a hidden capital buffer. We estimate the potential rights
issue to be reduced by more than half, to RM1.2bil. A reduced rights issue
would have lifted the fair value to RM15.10/share, which provides a decent
upside from the ex-rights price of RM13.80/share.
The uplift in fair value is on the back of higher book value
of RM10.29/share, arising from the gain of sale of treasury shares, which will
essentially help to compensate for the dilution in ROE. Given further
affirmations that treasury shares are unlikely to be utilised to reduce the
potential rights issue, we think there will likely to be some disappointment in
the market. We also expect ongoing slow revenue growth, although this should be
viewed positively in the longer term as it indicates continuing higher level of
standards set internally.
Others :
IOI Corporation : Indon unit’s losses widened in
3QFY15
BUY
Media Prima : Q1 earnings hampered by lower adex
HOLD
Genting Singapore : No sign of VIP turnaround anytime
soon HOLD
APM Automotive : Impacted by currency and depressed
production volume HOLD
UMW Oil & Gas : 1Q: Weak earnings due to margin
contraction SELL
Property Sector : Putting a lid on high-rise development in
Johor
OVERWEIGHT
Econ Watch : Global holdings of Malaysian government bonds
advance in April
NEWS HIGHLIGHTS
Construction Sector : Zelan eyes more Pengerang jobs
DISCLAIMER:
The information and opinions in this report were prepared by
AmResearch Sdn Bhd. The investments discussed or recommended in this report may
not be suitable for all investors. This report has been prepared for
information purposes only and is not an offer to sell or a solicitation to buy
any securities. The directors and employees of AmResearch Sdn Bhd may from time
to time have a position in or with the securities mentioned herein. Members of
the AmInvestment Group and their affiliates may provide services to any company
and affiliates of such companies whose securities are mentioned herein. The
information herein was obtained or derived from sources that we believe are
reliable, but while all reasonable care has been taken to ensure that stated
facts are accurate and opinions fair and reasonable, we do not represent that
it is accurate or complete and it should not be relied upon as such. No
liability can be accepted for any loss that may arise from the use of this
report. All opinions and estimates included in this report constitute our
judgement as of this date and are subject to change without notice.
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.