Overseas ventures beginning to pay off
Although local banks have been relatively sheltered from the financial turmoil in the US, their operating environment is expected to be tough, going into 2009.
Hong Leong Bank Bhd (HLB), however, has the added boost of revenue from its China operations and improved asset quality. With the contribution of its associate in China, HLB managed to register a strong set of numbers for the quarter ended Sept 30, 2008.
Registering a year-on-year net profit growth of 29% to RM242 million in 1QFY2008 ended Sept 30, HLB saw improved performance with an additional RM28 million from its 20%-owned Bank of Chengdu Co Ltd. The better results were also due to high non-interest income due to foreign exchange gains. Its asset quality has also improved, with loan-loss coverage improving to 109% and net non-performing loans ratio coming down to 1.8%.
Nevertheless, HLB's stock price does not reflect the bank's steady performance. From its 52-week high of RM6.45 in January 2007, the stock had dipped to its 52-week low of RM4.94 on Dec 17, 2008. Some 57% of analysts polled by Bloomberg have a "buy" call on the stock, which is trading at a price-to-book ratio of 1.4 times, and a consensus target price of RM5.80.
With the purchase of the Chinese bank now completed, HLB's entry into China is believed to be the catalyst for the banking group moving forward. Its FY2009 ending June 30 will see full contribution from its Chinese associate.
HLB is also entering the Vietnam market. The bank recently received approval from the Vietnamese government to open a 100% foreign-owned bank in the country. HLB will establish Hong Leong Vietnam with a capital base of one trillion dong, or nearly US$60 million (RM208 million).
HLB is steadily venturing abroad to diversify its risks and tap growing opportunities overseas for the longer term, and is already starting to see the fruits of its labours.
Thus, at its current low level, the stock makes an attractive pick for the long-term investor.
