CIMB Research retains Underperform on Hong Leong Bank

KUALA LUMPUR: CIMB Equities Research is retaining its Underperform rating on Hong Leong Bank as it sees challenges in its integration with EON Bank, including management distraction and possible attrition of key managers/clients.

It said on Friday, Sept 30 that credit cost could rise to restore loan loss coverage after the merger.

"We cut our FY12-14 net earnings forecasts by 4%-12% to factor in the rights issue, which would lead to a 19% increase in its share base."

"This, together with the withdrawal of the 10% premium over the DDM value, brings down our target price from RM13.50 to RM10.80. We prefer Maybank (Outperform) for exposure to the sector," it said.

CIMB Research has Technical Sell on Hong Leong Bank

KUALA LUMPUR: CIMB Equities Research has a Technical Sell on Hong Leong Bank at RM9.98 at which it is trading at a FY12 price-to-earnings of 10.2 times and price-to-book value of 2.1 times.

It said on Friday, Sept 23 that the recent correction does not look complete. Prices violated its 200-day SMA on Thursday and this could induce greater selling pressure in days to come.

The next downleg should push prices closer towards RM9.50 and RM8.80.

'MACD is heading south while RSI is below the 30pts mark. The deteriorating technical landscape shows that the bears are still strong here.

'Our strategy here is to unload on strength, preferably near the 200-day SMA (now at RM10.62). Only a swing above RM10.96 would prompt us to reevaluate our call,' it said.

#Stocks to watch:* Banks, oil and gas, Shell, Dialog, Hartalega, HL Bank

KUALA LUMPUR: Stocks which could attract trading interest on Wednesday, May 11 following fresh corporate news and developments include banks, oil and gas counters, HARTALEGA HOLDINGS BHD [], Shell Refining Company (Federation of Malaya) Bhd and DIALOG GROUP BHD [].

Maybank is raising its deposit and base lending rates effective Wednesday. Its deposit rates will be revised upwards by up to 30 basis points, while its base lending rate (BLR) will be increased by 30 basis points from 6.30% per annum to 6.60% per annum.

RHB Bank Bhd is also raising the BLR from 6.30% per annum to 6.60% per annum, effective Wednesday.

Oil and gas related counters will continue to be in focus, with the latest news that Petroliam Nasional Bhd plans to invest about RM50 billion in an integrated downstream oil and gas complex in Pengarang.

Shell Refining posted net profit of RM135.54 million in the first quarter ended March 31, 2011, up 131% from RM58.61 million a year ago. Revenue increased by 29% to RM3.20 billion from RM2.48 billion while earnings per share were 45.18c versus 19.54 sen a year ago. Shell Refining reported after tax stockholding gains of RM153 million for 1Q11.

Dialog and its business partner Roc Oil Company Limited, Australia are presently tendering for upstream oil & gas prospects in Malaysia. Dialog said that they would look into a possible joint venture if the tender was successful.

Meanwhile, Dialog will report its earnings after market close on Wednesday.

Hartalega's net profit for the fourth quarter ended March 31, 2011 rose 12.9% to RM52.39 million from RM46.41 million a year ago, driven by continuous expansion in production capacity, increase in demand, effective cost control and improvement in production processes.

Revenue for the quarter was up 17.8% to RM192.52 million from RM163.39 million. Earnings per share were 14.41 sen while net assets per share was RM1.36.

HONG LEONG BANK BHD [] has proposed to increase the size of the renounceable rights issue by RM1 billion from RM1.6 billion to RM2.6 billion to further strengthen its capital base and for working capital purposes.

HONG LEONG FINANCIAL GROUP BHD [] is providing a RM2.3 billion loan Hong Leong Bank to assist it with its risk weighted capital adequacy ratio (RWCAR).