Friday, May 15, 2015

AmWatch - Hong Leong Bank : Buffer plans for treasury shares HOLD, 15 May 2015


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.

Related Posts with Thumbnails