Affin Hwang downgraded its rating from
KUALA LUMPUR: Maybank Investment Bank Research has cut its target price for Hong Leong Bank Bhd
by 50 sen to RM15.20 from RM15.70 previously following the lender’s fund-raising proposal via a rights issue.
The research house had on Thursday, however, maintained its rating on Hong Leong Bank at “Buy”.
“Taking into consideration the potential for a slightly larger-than-expected rights issue, we are trimming our target price to RM15.20 from RM15.70, on an unchanged price-to-book-value (P/BV) of 1.6 times,” it said.
“We maintain our ‘buy’ call on Hong Leong Bank,” it added.
Hong Leong Bank, Malaysia’s sixth largest banking group by assets, on Wednesday announced a plan to raise up to RM3bil to strengthen its capital.
Maybank Research noted that the proposal was not a surprise as Hong Leong Bank’s management had previously indicated its intention to raise funds to boost capital. The brokerage said it had previously estimated that Hong Leong Bank would need to raise about RM2.7bil to take the group’s common equity tier 1 (CET1) ratio to about 11%.
“Assuming the bank raises RM3bil at a 20% discount to its current share price (at RM10.24 at time of writing), this would be a one-for-six rights issue and it would raise the bank’s CET1 ratio to about 11.2% from an estimated 8.7% on a fully loaded basis as at end-Mar 2015.
“We estimate the financial impact to be a 1.6% enhancement in its 2016 P/BV to RM9.48 but a dilution in 2016 return on equity to 11.9% from 13.6%,” it added.
