STOCK FOCUS OF THE DAY
Hong Leong Financial Group : Stronger earnings from
insurance business
BUY
We maintain our BUY call on Hong Leong Financial Group
(HLFG) with a higher fair value of RM17.70/share (previously RM17.60/share)
based on SOP valuation. Our SOP valuation is higher after factoring in HLBB's
estimated shareholders’ funds for FY18. We have rolled over our valuation
period for HLBB to FY18. HLFG's 2QFY17 net profit grew strongly by 14.7%QoQ to
RM513mil, contributed by an improved non-interest income (NOII). NOII surged by
38.7%QoQ, driven by higher net income from insurance business (+180.7%QoQ) and
fee income (+22.8%QoQ). 6MFY17 net profit was RM829mil, rose 27.5%YoY,
underpinned by higher pre-provisioning operating profit and lower provisions
for loan impairment. Cumulative earnings came in within expectations, making up
54.9% of ours and 54.2% of consensus estimates for FY17 net profit. All
business segments (Commercial Banking, Investment Banking, Insurance) showed
improved profit contribution to the Group's earnings in 6MFY17.
HLFG's 64.4%-owned subsidiary Hong Leong Bank (HLBB) reported
a higher PBT of RM1.37bil (+30.5%YoY), driven by higher operating income, lower
OPEX and provisions. HLA Holdings, the Group's insurance division, recorded a
higher pre-tax profit of RM189.2mil (+44.4%YoY), contributed by lower actuarial
reserve provisioning of RM24.3mil from higher interest rates (rise in MGS
yield). We fine tune-our estimates and tweaked our loan growth expectation to
5.0% (previously 6.0%) while raising our NOII estimate slightly for FY17. This
has lowered our net profit estimates for FY17/18/19 by 0.1%/0.5%/0.5%
respectively. We continue to see the Group's insurance and investment banking
business as undervalued by the market. Potential further increase in US Fed
Rate will be positive on the Group's insurance earnings as actuarial reserves
could further decline from higher interest rates.
Others :
Eonmetall Group : Earnings double in
FY16 BUY
Automobil Sector : A few rebels breaking from the herd
NEUTRAL
Carlsberg Brewery : 4Q17 results fail to
fizzle HOLD
DiGi.Com : Ample funding for spectrum purchase and
M&As HOLD
KPJ Healthcare : Patient Attrition Remains A Concern
HOLD
Hong Leong Bank : Uptick in GIL ratio and lower contribution
from Bank of Chengdu HOLD
STOCKS ON THE RADAR
Dufu Technology Corporation,Notion VTec,Solution
Engineering,Pestech International
ECONOMIC HIGHLIGHTS
Japan : Manufacturing moving to higher gear
US : Remain optimistic
NEWS HIGHLIGHTS
Property Sector : Mercury Industries’ subsidiary to develop
RM238mil project in Gombak
Bulding Materials Sector : Ann Joo returns to the black
Property Sector : UEM Sunrise to develop RM750mil project on
MCOBA land
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