8 Key Items You Must Know About Hong Leong Bank Bhd

Hong Leong Bank Bhd has its origins traced back to 1905. Back then, it was originally incorporated as Kwong Lee Mortgage and Remittance Company in Kuching, Sarawak. In 1934, Kwong Lee Bank Bhd was established and has served as one of the oldest financial institutions in Malaysia.

In 1982, MUI Group has acquired Kwong Lee Bank Bhd. It was renamed as MUI Bank in 1989. In 1994, Hong Leong Group has acquired MUI Bank, had it renamed to Hong Leong Bank Bhd and made it public on Bursa Malaysia in the same year. In 2011, Hong Leong Bank Bhd has merged with Eon Bank Group and thus, positioning the larger entity as the fifth largest banking group in Malaysia.

In this article, I will cover 8 things you need to know about Hong Leong Bank Bhd before you invest:

#1: Stock Symbol

Ticker Symbol: KLSE: HLBANK / KLSE: 5819
Market Capitalization: RM 34.38 Billion (9 October 2017)

Share Price: RM 15.86 (9 October 2017)

Industry: Banking

Syariah Compliant: No

#2: The Business

Hong Leong Bank Bhd derives income from:

1. Conventional Banking

   This includes the provision of financing mainly for the purchase of residential and non-residential properties, purchase of vehicles, credit cards, and working capital to individual and corporate customers.
   
   Hong Leong Bank Bhd has grown its loans, advances and financing assets from RM 95.43 billion in June 2013 to RM 123.99 billion in June 2017. This has resulted in growth in net interest income, up from RM 2.51 billion in 2013 to RM 2.85 billion in 2017.
   

2. Islamic Banking

   Established in 2005, Hong Leong Islamic Bank Bhd is the Islamic Banking arm to Hong Leong Bank Bhd. In 2017, it was reported to have gross financing assets of RM 20.8 billion or 16.6% of Hong Leong Bank Bhd’s total financing assets. From which, Hong Leong Islamic Bank Bhd has recorded a Profit After Tax and Zakat of RM 223 million in 2017 and thus, is one of the main sources of income to Hong Leong Bank Bhd.
   

3. Bank of Chengdu

   In 2008, Hong Leong Bank Bhd has acquired 20% shareholdings of Chengdu City Commercial Bank Co. Ltd (Bank of Chengdu) for RM 877.5 million. Profits contributed from Bank of Chengdu has grown from RM 99.5 million in 2009 to RM 342.9 million in 2017.

#3: The Financials

Over the last 5 years, Hong Leong Bank has increased its total income from RM 4.01 billion in 2013 to RM 4.55 billion in 2017. From which, it has made, on average, RM 2.0 billion a year in shareholders’ earnings during the 5-year period.

Return on equity (ROE) is lower for 2016 and 2017. This is because, Hong Leong Bank Bhd has substantially increased its shareholders’ equity from RM 16.79 billion in 2015 to RM 21.12 billion in 2016 after it has completed its rights issue exercise in December 2015. The rights issue exercise is an effort for Hong Leong Bank Bhd to be well-capitalized to meet the requirements of Basel Ⅲ in advance.

Source: Annual Reports of Hong Leong Bank Bhd

#4: Targets for 2018

Hong Leong Bank Bhd has revealed its key performance targets for 2018:

•         ROE  = 10% – 11%
•         Gross Impaired Loan Ratio < 1%
•         Cost-to-Income < 44%
•         Gross Loan Growth = 5 – 6%
•         Loan Deposit Ratio = 82%
•         Net Interest Margin > 2.1%
•         Non-Interest Income Ratio = 26%

#5: Risks

Inevitably, Hong Leong Bank Bhd faces several risks which are inherent to the banking industry such as:

1. Credit Risks

   It is the risk of losses arising from loan defaults. Hong Leong Bank Bhd has reported having Gross Loan Impairment Ratio of 0.96% in 2017. It is below the current industry average of 1.6%. |
   

2. Market Risks

   It is the risk of losses arising from adverse market movements such as interest rates and foreign exchange.
   

3. Operational Risks

   It is the risk of losses arising from human error or failure of IT and internal procedures. This includes the threat of cyber-security where important data are being accessed maliciously without authorization. Presently, Hong Leong Bank has installed an Anti-Persistent Threat mitigation platform to anticipate, detect and prevent evolving forms of cyber threats from infiltrating its IT systems.
   

4. Liquidity Risks

   It is the risk of losses arising from the unavailability to source for funding to fulfill its financial obligations when they fall due. In 2017, Hong Leong Bank Bhd has recorded Liquidity Coverage Ratio (LCR) of 137%. This means, it is capable to meet liquidity needs for a 30-day period in an acute liquidity stress scenario if it happens.

#6: Valuation

As I write, Hong Leong Bank Bhd is trading at RM 15.86 a share. In 2017, Hong Leong Bank Bhd had recorded RM 1.049 in earnings per share (EPS). Thus, its current P/E Ratio works out to be 15.12. Also, as at 30 June 2017, Hong Leong Bank Bhd has reported having RM 10.465 in net assets a share. Thus, its current P/B Ratio works out to be 1.52.

For the financial year 2017, Hong Leong Bank Bhd has declared RM 0.45 in dividends per share (DPS). If it is able to maintain its DPS at RM 0.45 over the next 12 months, I would expect to make 2.84% in gross dividend yields from investing in Hong Leong Bank Bhd at RM 15.86 a share.

#7: Investors Relation

For further enquiries on Hong Leong Bank Bhd’s Investors Relation matters, you may contact:

Jason Teh

Assistant General Manager, Corporate Finance & Investor Relations

Email: ir@hlbb.hongleong.com.my

#8: Major Shareholders

As at 30 August 2017, the top 5 largest shareholders of Hong Leong Bank Bhd are:

– Hong Leong Financial Group Bhd: 64.37%

– Employees Provident Fund Bhd: 12.93%

– State Street Bank & Trust Company: 1.55%

– Kumpulan Wang Persaraan (Diperbadankan): 1.05%

– Great Eastern Life Assurance (Malaysia) Bhd (Par 1): 1.05%

What Do You Think Of  Hong Leong Bank Bhd As An Investment? Will You Invest In It? Share Your Views Below

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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Ian’s personal capacity. It does not in any way represent those of his employer and other related entities. Ian does not own any companies mentioned.

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