This article first appeared in The Edge Financial Daily on September 20, 2018

KUALA LUMPUR: Hong Leong Bank Bhd’s (HLB) shares rose to a new high yesterday as investors gravitated to the stock, likely attracted by its sound fundamentals, analysts said.

The counter opened 10 sen higher at RM20.30 and quickly advanced to an intra-day high of RM20.92 ahead of the noon break before retreating to finish at RM20.66, up 46 sen or 2.28%. Some 1.03 million shares were traded.

Analysts contacted by The Edge Financial Daily said that banking stocks were generally bucking the trend of the broader market, and that investors may have been enticed by HLB’s firm fundamentals.

“One thing to look at is Hong Leong Bank’s solid fundamentals. Its asset quality is (only) second to Public Bank Bhd’s. It has kept its balance sheet strong, and a lot of their (management) efforts, including digitalisation, is bearing fruit, translating into (better) earnings growth seen these past few years,”said MIDF Amanah Investment Bank Bhd analyst Imran Yassin Yusof when contacted.

“I think its strong fundamentals is one of the reasons why the stock appears to be attractive to investors,”he added.

Year-to-date, HLB has rose by RM3.66 or 31.53%, outstripping Public Bank which has gained 20.3%.

RHB Bank Bhd and Affin Bank Bhd have risen 8% and 2.16%, respectively, while other banks have registered a negative performance.  

Another local analyst, who declined to be named, said HLB’s conservative management team may also be one of the reasons why the stock is preferred by investors over others.

“The bank is being run by a very conservative management team and has a sustainable net interest margin (NIM) (of 2.1% as at end-June). Given the volatile market as seen on Tuesday and the previous week, there are not many counters that may still attract investors, except several fundamental index stocks that are perceived to be safer bets,”the analyst added.

Besides its share price performance, HLB also has leg up over its peers in terms of valuations as it is currently trading at 1.77 times price-to-book (P/B), compared to its five-year average of 1.47 times. At 2.46 times P/B, only Public Bank enjoys better valuations.

The country’s biggest banking group Maybank has a P/B of 1.48 times, followed by CIMB Group Holdings Bhd at 1.18 times. RHB Bank Bhd, AMMB Holdings Bhd and Affin Bank Bhd are currently trading below one.

HLB’s share price, owing to its recent run, has exceeded the street’s average 12-month target price of RM19.81. Consequently, it is now valued at RM42.26 billion.

A constituent of the KLCI, it was the top gainer of the day, surpassing the local benchmark index rise of 0.43%.

Other banking stocks also finished higher. Heavyweights Maybank and Public Bank, however, only saw marginal increases of 0.1% and 0.64%, respectively.