Chengdu listing still on the table, Hong Leong Bank stands to gain
KUALA LUMPUR: The possible listing of Bank of Chengdu (BOC) -- although its timing is uncertain of yet -- may be a boon for Malaysian-based Hong Leong Finanical Group Bhd.
“The listing of BOC is still in the pipeline and we think that management will have to weigh its options of whether to subscribe to its portion to maintain a 20 per cent stake in the bank, since an associate stake in any financial institution is punitive on capital,” said an analyst with Maybank Investment Bank Bhd (Maybank Research).
“Nevertheless, we understand that Hong Leong Bank could still be able to equity account for BOC’s earnings even if the stake falls to 15 per cent, as HL Bank would still be deemed to have significant inf luence on BOC. To note, Hong Leong Bank currently has two directors on BOC’s board.”
Should the listing come through, the firm believes Bank of Chengdu’s valuations will not see any near term enhancements to Hong Leong Bank’s valuations.
“In March 2016, two midsized Chinese lenders went for initial public offering – China Zheshang Bank and Bank of Tianjin. Both were priced at a price to net tangible asset ratios of about one times each,
“As such, we do not expect any near term enhancement to group valuations from the listing of Bank of Chengdu at such valuations.
Thus, Maybank IB Research continues to peg Hong Leong Bank’s valuations to a price to book value multiple of 1.4 times, but with valuations rolled forward to CY17 from CY16.
“As a result, our target price for Hong Leong Bank is now raised to RM15 from RM14.40.”