KUALA LUMPUR (Oct 26): Analysts said Hong Leong Bank Bhd (HLB)'s RM3 billion renounceable rights issue will result in improvement in the bank's CET1 ratio by up to 300 basis points (bps).

Affin Hwang Capital Research maintained its "buy" call on HLB with a post-rights issue target price (TP) of RM13 compared to RM16.20 previously, after the bank had fixed its issue price at RM10.40, for its four-for-25 issue of 287.8 million rights shares.

"Based on a pro forma estimate of the impact on HLB's capital position, the additional RM3 billion equity capital will beef up the fully loaded CET1 ratio of the group and bank from 8.7% and 7.7% respectively (as at June 30) by circa 290 bps to 300 bps," said the research house.

It noted that HLB's CET1, tier-1 and total capital ratio stood at 10.8%, 11.9% and 14.3% respectively as at June 30.

Upon the completion of the rights issue, Affin Hwang expects that HLB's earnings per share forecasts for FY16 to FY18 will be diluted by around 15%, while return on equity will fall to 11.4% in FY16 from 12.3%.

Overall, the research house said it remains positive on the outlook for the group in the domestic retail banking market, while also supported by contribution from Bank of Chengdu.

Similarly, TA Securities expects the bank's CET1 ratio to improve by more than 10%, which is in line with HLB's internal target to keep CET1 around 1% to 2% above the requirement set by Bank Negara Malaysia.

TA had tweaked its net profit estimates for FY15, FY16 and FY17 to RM2.177 billion, RM2.542 billion and 2.857 billion respectively, slightly higher than previous estimates of RM2.132 billion, RM2.452 billion and RM2.767 billion respectively.

Despite the slightly higher net profit forecasts and the expected improvement in the company's CET1 ratio, the research house maintained its "sell" call on the stock.

"Sell maintained premised on the potential downside from the stock's last close," it said.

The research house has a post-rights issue TP of RM11.60, from RM12.30 previously.

At 11am, HLB fell eight sen or 0.56% to RM14.12, bringing its market capitalisation to RM25.54 billion.

(Note: The Edge Research's fundamental score reflects a company's profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)