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Posted: 16 Sep 2011 05:42 PM PDT

The bank is confident of meeting the targets despite worries of an economic slowdown.

HAVING been through two major bank mergers, Yvonne Chia, managing director and CEO of Hong Leong Bank (HLB), is confident of leading her team on a journey of transformation under the current merger with EON Bank.

Despite concerns over a potential economic slowdown, she remains confident of meeting the value indicators of the merger.

"We had entered the merger fully aware of what was ahead and the potential risks and opportunities. We will still aim, on a combined-bank basis, to grow,'' she tells StarBizWeek. "We are on a growth agenda.''

The HLB group's net profit after tax (incorporating two months' contribution from EON Bank) for financial year (FY) 2010/11 is RM1.135bil while that of stand-alone HLB, excluding consolidation of EON Bank group results and merger-related financials for FY10/11, is RM1.168bil, representing a gain of 16% year-on-year.

"However, if the market does turn, then we have to be adaptive. At the end of the day, we cannot be blindly growing when the market has changed and we must protect our business sustainability.

"I must always be guided by sustainable growth and the long-term franchise value,'' she says. "I just have to be (confident). I just have to do it. I think today, even in a cautious environment, there are always things we can do if we know the clients and segments to pick,'' she says, adding that there are still opportunities in the economy where drastic changes are not likely to happen overnight.

Analysts have varying views on the HLB group, from "buy" to "hold".

HwangDBS Vickers Research, in upgrading its target price on HLB, cites improved efficiencies, higher net interest margin and a larger presence in the hire purchase (HP) as well as small and medium enterprises (SMEs).

Strong organic growth, coupled with contribution from its 20% associate Bank of Chengdu, which remains in growth mode in consumer, SME and local corporates, are also factors favouring the merged HLB group, says HwangDBS in its report.

UOB Kay Hian Research has lowered its profit forecast for FY12 and FY13 by 9%, factoring in a lower loan growth (from 16% and 12.5% to 15% and 11% respectively).

"Management is guiding for a loan growth of 10%-15%, driven by financing extended to the consumer sector and SMEs (both of which make up 77% of HLB's portfolio). We are looking at a loan growth of 12% but foresee downside risks arising from weaker economic growth,'' says UOBKayHian in its report.

A key feature of this merger will be Hong Leong's standards of efficiency and productivity, details of which will be revealed over time.

Cost synergies will be derived from sharing of information technology, collapsing of two facilities, people efficiency as well as processes and systems.

Revenue synergies are derived from an expanded customer base and cross-selling of more products and services especially in the consumer and business banking as well as global market divisions.

Revenue synergies are also derived from a lower cost of funds.

"We also have to deepen the return on assets from each client relationship and come up with bundling of products and services to be more sticky' with the clients,'' she says.

Altogether, revenue and cost synergies are estimated by analysts to come up to RM400mil in three years; however, the breakdown is not available yet.

Some analysts opine that it may not be that easy to achieve those synergies in view of the economic slowdown. Others note that there are "rough indications'' of those synergies but question how fast they can be realised.

There is also an estimated cost synergy of 40% in cost savings which some analysts find rather ambitious. However, Chia is not commenting on that at the moment. All she would say is that it is only an estimate and that she hopes to achieve some of those synergies within the first year itself.

"We have to focus on the salient points,'' she explains. The combined workforce is 12,000; the desired numbers would have to be evaluated based on those efficiency standards.

Cost synergies will be front-loaded while revenue synergies will develop over time, she says in HLB's 100-day achievement report. Integration teams are finalising plans to realise these synergies and reports on the achievements will be out every six months.

Some concrete numbers will be useful as analysts ponder over how much more value can be extracted in this challenging environment.

Major cost items for the integration include harmonisation of information technology applications, infrastructure and security systems, relocation and redeployment of branches, overall efficiency improvements and costs to refresh the brand identity.

No more merger expenses

With an emphasis on value-added spending, Chia does not expect more merger expenses which amount to RM111mil so far.

"There are some expenses that have to be capitalised and some that have to be expensed. We will continue to grow our performance,'' she says.

There will be no kitchen sinking per se, but provisioning will be brought to HLB's standards. "My loan loss coverage ratio (indicating the bank's coverage for bad debts) is about 130%,'' says Chia. "After the merger, it was 110%. We may bring it back up to between 120% and 125%.''

"Our first phase of providing common services to the branches of both banks was done well and we are now in the second phase. The immediate item in this second phase is to reap the synergies and value creation, post merger,'' she says.

The first wave involves delivering common customer services while stabilising the business and ensuring the inter-operability of customer-facing functions for most transactions.

Under the second wave, Chia's priorities will include, besides the reaping of synergies, alignment of people, further scale and achievement of standards as well as plans for reconfiguration of branches.

While the enlarged HLB group will be the fourth largest in terms of assets, it has the second largest branch network of 329. The group has no plan to trim the number of branches.

Analysts question the viability of such a plan amid concerns over cost savings.

"The board of HLB believes that the real banking on the ground involves reaching out to the community. To do this, a wide branch network is required. Internally, before this merger, we have been wanting to grow the number of branches to more then 300,'' Chia says.

To make that work, there are factors that go beyond physical presence.

"My challenge, going forward, is how to optimise the use of branch network to drive our value proposition and embed ourselves to the community.

"That requires the presence of entrepreneurial people and savvy branch managers. A culture of being service and community-oriented will help make the difference,'' she says.

Branch set-ups will no longer be based on the traditional concept but integrated with e-banking for greater efficiency.

HLB has rolled out 46 business banking branches that offer customer facing and relationship banking for the SME and business owners.

Customer and staff retention

The merger with EON Bank, which has a strong HP franchise, has caused some concerns over retention of customers and dealers.

This is in view of the fact that HLB had backed away from the HP business at one time, possibly estranging the group from an important link the auto dealers.

Chia recognises the contribution of the HP sector. "The merger with EON Bank is about growth and HP is a sizeable segment in the (EON Bank) group.

"The key thing is not just to grow and sustain the business but also enhance it through portfolio balancing and efficiency of processes.

On the relationship aspect, Chia assures that it is on track. "At many get-togethers recently, we had good engagement and proactive dialogue with the auto dealers as well as at the ground level,'' she says.

In terms of staff retention, Chia's strategy includes focusing on young talent and upgrading of current competencies.

Many competency areas such as in branch management, service and sales as well as credit skills will be in demand.

To underscore the seriousness of the move to enhance human capital, the HLB group has recently set up training academies for branches, operations, sales and credit.

Skill enhancement in product selling, risk management as well as new accounting rules are among some of the required competencies that need to be developed.

On a personal level, she refutes the notion that the HLB work culture is tough and demanding.

"I don't like to procrastinate,'' she says. "I know I can be demanding but those who are ambitious, driven, competitive, willing to learn and work hard will work very well with us.

"To excel, one has to be demanding and to insist on high standards ... that is universal. We attract people who want to do well in life and grow to be successful indivduals,'' she adds.

More mergers and acquisitions?

"We have enough on our plate to work on for the time being,'' says Chia.

However, she is not restricting herself to just that. "We remain opportunistic. If a deal comes, I will look at it,'' she says. "If it makes sense, we will look at it seriously.''

Taking EON Bank as an example, Chia recalls talking to EON Bank at a totally different price when she first joined HLB seven years ago.

"They held out then,'' she recalls. "Since then, regulations and rules have changed.''

HLB paid RM7.30 per share or RM5.06bil for all the assets and liabilities of EON Bank. It had increased its original offer of RM7.20 per share upon protests by certain shareholders.

Reports indicated there had been offers previously but the EON Bank shareholders had held out for better prices.

"Sometimes, it is good to sit down and wait. We never know, when a crisis happens, we have sensible prices to negotiate on.

"A lot of people are expanding and expanding,'' she says. "At the end of the day, it is all about specific cases of how the potential value of acquisitions can be achieved,'' she says.

Among its overseas acquisitions, the bank in Vietnam has turned in its maiden profit while its 20% associate Bank of Chengdu has brought a decent profit contribution of RM211mil in the last financial year.

Chia is full of verve and vitality, and is ever ready take HLB into the next quantum leap. Known to be a tennis buff, she is passionate on how to put HLB on a stronger footing to face the changing financial landscape.

Through detailed and intense planning, she has set up the machinery that not only closely tracks but also implements the merger strategies.

In this respect, she is not short of experience and is aware of all the steps necessary for a successful merger.

It is not just the technical requirements that merit close attention but also the human and communicative aspects. That involves a lot of energy and interest to sit down and engage with the staff, of all ranks, individually as well as at the branch level nationwide.

"I think all CEO roles involve dealing with people. Everything that we do is about dealing with the human psyche,'' she says. "I will try, whenever I can, to reach out to each individual personally and have a heart-to-heart conversation.

"I always believe in confronting (an issue) honestly. My management style is very much based on facts and guided by what is best for the organisation,'' she says.

Despite the seriousness of her role and work pressure, Chia has a sense of humour and likes to tell anecdotes. Being customer focused and market-oriented, she uses these real life anecdotes as a means of relating the customer experience.

She also likes to share a light moment with her staff or people around her as a rallying point. For at the end of the day, she sees their coming together as one team as a vital building block in her foundation for merger value creation.

Eye on Stock

Posted: 16 Sep 2011 04:51 PM PDT

GENTING Bhd fell to a near 12-month low of RM9.40 on Aug 23, marred by persistent profit-taking activity amid extended correction.

Thereafter, it turned sideways, fluctuating within a moderate range and during the process it re-tested the bottom twice, once on Sept 6 and again on Wednesday before bouncing off slightly to close up six sen at RM9.50 yesterday. Based on the daily bar chart, Genting had stabilised and making an effort to establish a new base above the fairly solid floor of RM9.40 to launch the next recovery phase. Hence, investors can consider accumulating gradually at current levels, if one is optimistic. Otherwise, wait for the confirmation. For now, the 14-day relative strength index appeared trapped below the mid-range. But in stark contrast, the oscillator per cent K and the oscillator per cent of the daily slow-stochastic momentum index had indicated a tentative curving up pictogram at the neutral zones.

Elsewhere, the daily moving average convergence/divergence histogram scaled higher towards the zero thresholds, albeit at a slow pace. It had issued a buy on Sept 7.

Indicators are improving and the price may strengthen. A successful penetration of the RM9.85 barrier will be good, and it may be enroute to the 50-day simple moving average (SMA) of RM10.28. The next upper strong hurdle is resting at RM10.73, where a clear breakout would open the window for the stock to challenge the all-time peak of RM11.98 in the medium term. If the RM9.40 line is violated, then the lower support of RM9 mark and the RM8.75 level would be vulnerable. The comments above do not represent a recommendation to buy or sell.

Market developments not looking good

Posted: 16 Sep 2011 04:49 PM PDT

REVIEW: Despite indicators pointing to a rebound, Bursa Malaysia opened the week on an easier footing, with the FBM Kuala Lumpur Composite Index (FBM KLCI) declining 4.33 points to 1,464.79, as most investors moved to the sidelines following huge losses in US markets overnight.

Wall Street slumped 303.68 points to 10,992.13 on growing doubts about Europe's ability to resolve its sovereign debt crisis and the stronger greenback sparked a sell-off in risky assets, pulling crude futures down US$1.81 to US$87.24 the previous Friday.

Although stocks in South Korea, Taiwan and China were closed for the Mid-autumn Festival, the poor showing in other markets in Asia-Pacific added to the downbeat note.

Against the negative backdrop, the key index drifted deeper into the red, touching a low of 1,443.93 in the afternoon before ending at 1,446.26, shedding 22.86 points on Monday.

Overnight, the Dow started out badly the next day, plummeting 167.37 points to 10,824.76 at one stage before staging a late comeback to post a gain of 68.99 points to 11,061.12, as news that Italy might get financial help from China sparked a bout of short-covering action. Elsewhere, crude oil recovered 95 cents to US$88.19, tracking equities.

As expected, Asian stocks got a lift from the late spurt of buying in US markets, trading higher in early business, but sadly, they later turned mixed, as optimism on China buying huge amounts of Italian bonds were tempered by ongoing concerns about the wider eurozone debt crisis.

Given the lack of clear direction from the offshore peers, the local bourse turned sideways, with the key index fluctuating between an intra-day high and low of 1,452.15 and 1,445.97 respectively; a pretty tight 6.18 points on bargain hunting interest alternated with light selling throughout.

At the closing bell, Bursa Malaysia chalked up 1.74 points to 1,448.00 in sluggish session on Tuesday.

Come Wednesday, the overnight Dow tacked on an extra 44.73 points to 11,105.85 and crude oil prices jumped a hefty US$2.02 to US$90.21 on follow-through nibbling, as investors bet European leaders would soon take action to ease the Greek debt crisis.

In spite of that, Asian markets continued to show a mixed picture, as not all were convinced and unlike the previous day, the local investors wobbled after a brief respite.

Consequently, the blue chips suffered a beating, dragging the FBM KLCI down 10.39 points to 1,437.61 in mid-week.

The key index shed another 6.68 points to end the week at 1,430.93 on extended selling on Thursday, ignoring the overseas rebound, as most investors were reluctant to participate, with prevailing external uncertainty clouding the marketplace.

Bursa Malaysia was shut on Friday for a public holiday.

Statistics: On a week-on-week basis, the principal index fell 38.19 points, or 2.6% to 1,430.93 on Thursday, against 1,469.12 on Sept 9.

Turnover for the four-day holiday-shortened week amounted to 2.883 billion units valued at RM4.887bil, compared with 3.550 billion shares worth RM6.259bil done during the regular previous week.

Technical indicators: The oscillator per cent K and the oscillator per cent D of the daily slow-stochastic momentum index were fast reaching the oversold area but they gave no sign of reversing up yet. It issued a short-term sell at the mid-range on Monday.

The past week witnessed the 14-day relative strength index retracing back from the mid-range to the neutral area yesterday.

Also, the daily moving average convergence/divergence (MACD) histogram had indicated a bearish divergence pictogram and appeared in danger of slipping below the daily signal line.

Weekly indicators were negative, with the weekly slow-stochastic momentum index triggering a sell signal and the weekly MACD retaining the bearish note.

Outlook: The 50-day simple moving average (SMA) and the 100-day SMA deteriorated rapidly after staging a "dead cross" a week ago. Apparently, the former had fallen below the important 200-day SMA and with the latter looking frail and defenceless, another breakdown may be imminent.

Market developments over the past several weeks already do not augur well for the bulls and should another breakdown come about in the near future, it would further fan worries that the local bourse is on the verge of entering a bearish cycle. For now, we remain neutral but will turn bearish once the recent low of 1,423.47 is violated. The lower support is envisaged at the 1,396-1,400 points band, followed by the 1,350-point mark.

Technically, indicators are frail, suggesting Bursa Malaysia may trade range-bound at best in the immediate term and based on the daily bar chart, the market has no chance of coming out of the doldrums, as long as the key index continues to flirt below the 21-day SMA, now resting at 1,468.30 and still declining.

Higher resistance barriers are expected at 1,500 points, 1,516 points, 1,527 points, followed closely by the 100-day SMA of 1,532.

Kredit: www.thestar.com.my

Jumaat, 16 September 2011

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