Hong Leong Finance

[ichew]

From UBS:-

Downgrade from Buy to Neutral rating.
dtd 15 June 2009 by [email protected] (+65 6495 5906)

Fully valued
Hong Leong Finance (HLF) is now trading at 13.1x earnings and 0.87x book after having rebounded 71% from the lows of March. This represents mid-cycle valuations and we think further upside will be limited given the absence of significant earnings catalysts. Also, we believe the company is unlikely to return to its high dividend payout policy in a recession. Given the lack of a catalyst in the near term, we downgrade the stock from Buy to Neutral rating.

Provisioning likely to remain high
In Q1, loan growth was down by 11.7% from a year ago and we think this trend will remain throughout 2009 as HLF has high exposure to real estate and hire purchase. This concentration also poses higher provisioning risk, especially with car loans as their value falls in a recession.

Dividend payout to remain subdued
In recent years, HLF’s high dividend payout had been one of the key attractions but we believe given the economic slowdown, the company is unlikely to revert back to that policy this year. We estimate the payout will be 25%, translating into a yield of only 1.9%.

Valuation: we revise our price target from S$2.60 to S$2.90
We revise our price target from S$2.60 to S$2.90 as we roll over our estimates to mid 2010 to reflect a 12-month outlook. We derive our price target using the Gordon Growth model, with an ROE of 6.6% and COE of 6.7% (previously 7.7%).

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Hi W and MM,
thanks for all these updates.
now tat i have tried it once, i salute u 2.
tink i will leave it to u guys to do it
it takes patience

[winston]

Hi W and MM, thanks for all these updates. now tat i have tried it once, i salute u 2. tink i will leave it to u guys to do it. it takes patience

Dear ichew,

The way I do it, is as follows:
1) Copy & Paste the article into the "Post Reply" section
2) Read & Edit the article there.
3) Then submit it
3) Because I'm reading and editing the article, I understand the article better, compared to just glancing through it.

Take care,
Winston

[ichew]

thanks for the tip, Winston
i didnt do step (2)
so logical n yet i didnt tot of tat keke

[millionairemind]

Hong Leong Finance
June 16 close: $2.59
DMG & PARTNERS SECURITIES, June 16

WE are upgrading Hong Leong Finance's TP from $2.65 to $3.20, on the back of recent improvements in residential property sales, which is positive due to HLF's loan concentration in this segment. We also believe HLF's asset quality will be more resilient given its conservative loan stance. We maintain our 'buy' call. Some 30 per cent of HLF's loan book is to the building and construction space and 18 per cent for housing loans. This high exposure is on account of Hong Leong Group's participation in the Singapore property market. The recent housing sale sentiment improvement will also translate to higher asset quality for HLF. Earnings could exceed our forecasts if provisions stay low. We are maintaining our earnings forecasts, and have assumed FY2009 provisions of $38 million, sharply higher than FY2008's estimated $10 million (excluding one-time provisions for Lehman Minibond Notes). If provisions were lower than our forecasts, then HLF earnings could surpass our forecasts.
BUY

[winston]

Not vested.

Hong Leong Finance has slashed mortgage rates for government-built HDB apartments in a bid to attract more business in a low interest rate environment.

The finance firm is offering a fixed rate of 1.63 percent in the first year and 2.63 percent in the second year.

[winston]

HLF's Q3 net profit up 5.7 pct By SIOW LI SEN

HONG Leong Finance has reported a 5.7 increase in net profit to $32.6 million for the third quarter ended September 30.

Its net profit for the nine months was down 6.7 per cent to $86.1 milllion.

[stilicon]

Thank you, winston, to share this UOBKH news. This company seems interesting. Do you have an opinion on this company ? The HL group seems to be managed very wisely by the Kwek family. They seem to treat the shareholders correctly, don't they ?

A long term (actually eternal) growth of 4,5% seems always ambitious to me in any context. Except if high inflation is a sure thing in the future.

Do they give an idea of the dividend for FY09 and beyond ?

[winston]

Hi stillcon,

They are looking for a yield of 3.5% next year and 4.5% the year after.

My personal opinion is that the margins are coming down due to competition. I'm not really interested in the financial services sector now unless prices are down sharply.

I have attached the entire report below:-

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Not Vested. From UOBKH:-

Re-rating on resumption of growth

Corporate Event
Resuming growth in 2010. Hong Leong Finance’s (HLF) loan book contracted 7.8% in 2008 and a further 14.2% in 9M09 due to the repayment of car loans and loans to property developers. The company has also taken a defensive posture by increasing cash holdings from S$612.7m as at Dec 07 to S$1,422.5m as at Sep 09.

HLF is well-positioned to resume expansion in 2010. It has reach out to retail and SME customers through participation in government’s Special Risk-Sharing Initiative (SRI) and has introduced a new housing loan package targeting the HDB market. It has also embarked on a marketing blitz for car loans since Sep 09.

According to management, approvals for housing loans and SME loans have increased 10-15% qoq in 3Q09 while approvals for car loans increased by a higher 20% qoq. Management expects new loans approved to translate to drawdowns in 4Q09. We expect positive loan growth of 9.1% in 2010.

Asset Quality Intact. According to management, absolute NPLs were relatively unchanged at about S$217m since Dec 08. The resilient domestic economy and healthy unemployment rate of 2.9% has moderated NPL formation.

HLF has minimal exposure to manufacturing and export-oriented industries (only 0.5% of total loans), where NPL formation has been more severe during current downturn. We expect HLF’s NPL ratio to creep slightly higher from 2.9% Dec 08 to 3.2% at Dec 09 due primarily to contraction in total loans.

HLF’s lending is usually secured by collaterals. Lending on an unsecured basis represents only 1-2% of total loans. MAS has imposed strict regulatory requirement with minimum Tier 1 CAR at 12%. The strict regulatory regime has ensured that HLF has a robust capital base and able to withstand volatility in the business cycle. We estimate HLF’s Tier 1 CAR at 19.4% as at Dec 09.

Earnings Revision
We have imputed loans growth of 9.1% for 2010 and 10.5% for 2011 in our earnings model. UOB Economic-Treasury Research forecasts the first 25bp rate hike in 3Q10 and expects Fed Funds Rate to hit 1.00% by end-10. 3-month SIBOR is thus expected to increase from 0.7% to 0.9% in 2H10. We expect net interest margin (NIM) to taper off slightly from current 2.86% to 2.75% in 1Q11. We estimate ROE at 8.6% for 2010 and 8.9% for 2011.

Valuation/Recommendation
HLF trades at P/B of 0.90x and a discount of 9.8% to NAV/share of S$3.28. We believe this is unjustifiable given good asset quality with loans mostly secured by collaterals. Our target price is S$4.32 based on P/B of 1.23x, derived from the Gordon Growth Model (ROE: 8.8%, required return: 8% and constant growth: 4.5%).

[stilicon]

Many thanks. You're right. Valuations are high, not only in financial services, but everywhere.
I can't help but wait for a decline on most markets. If ever the USD raises and the USD carry trade inverts, the plunge could be serious.
It is time to raise cash and sell the weaker lines.
Take care.

[winston]

DJ MARKET TALK: Macquarie Raises HL Finance Target To S$3.67
1/15/2010 4:22:00 PM

0822 GMT [Dow Jones] Macquarie raises Hong Leong Finance (S41.SG) target price to S$3.67 from S$3.24 on higher earnings forecasts, maintains Outperform rating. Broker raises FY09, FY10 net profit forecasts by 19%, 23%, respectively to reflect revised assumptions post recent 3Q09 results with stronger income, lower provision assumptions.

Tips financial services company to resume steady growth trajectory led by improvements in loan growth; "HL Finance remains poised to ride the domestic economic recovery with its strategy to grow its retail and small and medium sized enterprises franchise." Estimates FY10 loan growth will reach 9% on-year, after contracting by an estimated 12% on-year in FY09. Says valuation reasonable; at 0.9X P/B company trading at significant discount to banking sector average of 1.6X. Shares down 0.6% at S$3.07. (KIG)


Source: Dow Jones Newswire