6 days ago
HLB's strong 3Q results offset dilution of stake in China bank
CGS International Research has raised its FY25 core earnings per share forecast by 14.8% to factor in the RM399mil writeback.
PETALING JAYA: The RM407mil dilution loss that Hong Leong Bank Bhd (HLB) recorded for its stake in Bank of Chengdu Co Ltd (BoCD), in China does not overshadow the strong financial performance of the bank for its third quarter ended March 31, (3Q25).
The bank experienced the dilution after its stake in BoCD fell to 17.8% from 19.8% following the latter's move to complete the conversion of its convertible bonds into new ordinary shares, following an early redemption process concluded in February.
'This dilution loss came about after BoCD's minority shareholders exercised their convertible bonds (C-bonds) at a lower share price.
'The price differential forms the basis of the dilution impact. As a result, HLB now has a reduced stake in BoCD, which is still worth RM9bil. No further conversions of this scale are expected.
'Further dilutions, if any, will be extremely minor, and will come from either placements or rights issues,' MIDF Research stated in a report following HLB's result filings.
The bank posted core net profit of RM1.35bil in 3Q25, up by 18% quarter-on-quarter (q-o-q) due mainly to the large writeback of its RM399mil management overlay.
For the nine-month period (9M25) HLB's core net profit beat analysts expectations and was up 14% year-on-year to RM3.59bil on improved net interest income and non-interest income, aside from the overlay writeback.
On the issue of the overlay, MIDF Research said the move brings HLB's loan loss coverage (LLC) rate down to 85% from 139% and leaves RM175mil worth of overlays remaining.
'Management is comfortable with the current LLC level, so we don't expect any major overlay allocations as the current gross impaired loan (GIL) ratio is to be maintained with only a few one-off impairments expected in overseas markets,' MIDF Research said.
It maintained a 'buy' call on the bank with a revised target price of RM23.09 a share from RM22.10.
Meanwhile, CGS International Research, which has HLB as its top pick for the sector with a target price of RM30.70 a share down from RM31.40, has raised its FY25 core earnings per share (EPS) forecast by 14.8% to factor in the RM399mil writeback.
It also reduced its projection for associate contributions from BoCD by 10% for FY26 to FY27 to reflect the dilution of HLB's stake in the Chinese bank, leading to a 2% drop in its FY26 to FY27 EPS estimates.
UOB Kay Hian Research said that, with HLB's capital ratio improving, it foresees a gradual increase in the dividend payout ratio from 35% in FY24 to 40%, 45%, and 50% for FY25 to FY27, implying a 4% to 6% yield over the period.
It also has maintained its 'buy' call on the bank with a higher target price of RM23.80 a share from RM23.60.
