Analysts predict that the asset quality of Bank of Chengdu, in which Hong Leong Bank Bhd holds a 19.76% stake, will remain robust due to its strict risk management policies and proactive measures.
Key Takeaways:
Strong Risk Management Practices: According to CIMB, Bank of Chengdu has adopted a conservative risk culture, performing thorough assessments of location, developer reputation, project viability, and management integrity before financing property projects. The bank closely monitors early warning signals like construction progress, sales progress, budget overruns, and fund usage by developers to mitigate potential risks.
Proactive Measures Against Property Slowdown: The bank's precautionary measures allowed it to reduce exposure to problematic property loans and exit risky loans before China's property market slowdown. This conservative approach is expected to benefit Hong Leong Bank by minimizing potential asset quality concerns.
Continued Optimism and Buy Recommendations: Both CIMB and RHB remain optimistic about Hong Leong Bank. CIMB maintains its "buy" call with a target price (TP) of RM25.30, emphasizing that concerns over Bank of Chengdu will likely fade over time. RHB, noting the healthy economic conditions in Chengdu and the bank's prudent screening policies, also maintains a "buy" call with a TP of RM26.60.
Growth Prospects for Bank of Chengdu: RHB highlights that Bank of Chengdu is well-positioned for growth, driven by sectors like high-tech, renewable energy, and manufacturing. Despite moderating retail loan growth, the bank sees strong deposit growth, especially within the high-income consumer segment in Chengdu. The city's plan to bolster its renewable energy and high-tech sectors is expected to further support the bank's growth.
At the time of writing, Hong Leong Bank shares were trading at RM21.58, up 28 sen or 1.3%, with a market capitalization of RM46.8 billion.
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