Monday, August 29, 2011

CIMB Research maintains Underperform on Hong Leong Bank

KUALA LUMPUR: CIMB Research is maintaining its Underperform on Hong Leong Bank as the banking group missed its FY6/11 forecast by 6% and was 8% short of consensus estimates.

The research house said on Monday, Aug 29 this was mainly because of lower-than-expected net interest margin and one-off merger costs.

However, the gross DPS of 24 sen (15 sen final) was within expectations, being on par with last year's.

'We tweak our FY12-13 EPS up by about 1%, which has minimal impact on our target price of RM13.80, based on a 10% premium over DDM value.

'Although we are positive on its prospects after its takeover of EON Bank, the integration exercise poses short-term earnings risks in the form of management distraction and possible attrition of key managers/customers,' it said.

CIMB Research said this could catalyse a de-rating. Other downside triggers that underlie its Underperform recommendation were its above-sector valuations and the 8%-13% EPS dilution from the rights issue. It added that it preferred Maybank.

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