Written by Joseph Chin
Tuesday, 03 November 2009 10:48
KUALA LUMPUR: OSK Investment Research has raised its fair value for Hong Leong Bank (HLB) to RM8.20 from RM6.90, underpinned by key rerating catalysts including earnings upside surprise from strong contribution from Chengdu Bank and domestic treasury operations.
The research house said on Tuesday, Nov 3 other catalysts were additional regional acquisitions at attractive valuations, and special dividends.
"We have raised our fair value from RM6.90 (1.6 times FY10 price-to-book value) to RM8.20 (1.9x FY10 PBV) after reducing our COE (cost of equity) from 9.8% to 9.4%.
On Monday, the bank announced that the group had teamed up with its associate Bank of Chengdu Co Ltd (BOCD) to form a joint venture company to be known as Sichuan Jincheng Consumer Finance Limited Liability Company (JV Co) to operate a licensed consumer finance company in Chengdu, Sichuan, China.
HLB will have 49% equity interest and BOCD will hold the balance 51% equity interest in the JV Co. The JV Co's business will principally be in consumer financing. Its registered capital shall be 320 million renminbi (about RM160m) and HLB's contribution shall be 156.8 million renminbi (approximately RM78.4 million), which will be financed from internally generated funds.
OSK Research said the latest announcement indicated the group remained committed to establishing itself as a regional bank with a footprint across the region. Despite its current exposure to China and Vietnam, the group continues to be on the lookout for attractive financial acquisition opportunities across the region.
"The strategic tie-up allows HLB to leverage on BOCD's current infrastructure while giving the group a greater share of the lucrative and fast growing and relatively under-penetrated consumer banking market in Chengdu via its larger 49% stake in the JV vs its 20% direct stake in BOCD. The strategic tie-up also serves to provide a more balanced customer mix for BOCD, which is currently skewed to state-owned enterprises.
"Given HLB's established consumer driven banking expertise and platform and Chengdu's under-penetrated consumer banking market, we believe that the tie-up will provide significant growth potential and scalability," it said.
