20-12-2011, 08:32 AM
(20-12-2011, 07:30 AM)Musicwhiz Wrote: Book value can be very deceptive and should not be taken as "intrinsic value". I note that these two terms are used somewhat interchangeably in the analysis. Discount to book may not necessarily indicate a bargain, and market price may or may not rise to bridge the "gap". It would depend on how assets are valued on the Balance Sheet in the first place, and one should also check for potential impairments to asset values which may have been recorded on a historical cost basis.
I also think P/B ratio can be misleading, since book value itself is not an accurate measure.
I believe MAS requires banks and finance companies to present their lending as realistically as possible. There are general provisioning for the entire loan portfolio and specific provisioning for those loans that may become problematic.
During turbulent times, finance companies should fare better than banks as their loans are predominately secured.
That said, finance companies are facing headwinds; they can't lead in foreign currencies and SMEs (which are their traditional clients) are turning to banks as they venture overseas.
Not sure the loan portfolio and branch network of a finance company are of value to the likes of Hong Leong Bank, MayBank or Standard Chartered Bank. There are recurring talks of banks interesting in Hong Leong Finance.