Hong Leong Finance ("HLF") looks set to report a record earnings for its 1st half performance of FY2023 given that the global rate hikes in earlier part of the year should have pushed up its Net Interest Margin ("NIM"). Despite previous announcement that its FY2022 net profit after tax has increased by +54.4% relative to FY2021, HLF share price has barely moved up and on the contrary, decreased even further, relative to prior years. Pre-COVID 2019 days, HLF's share price was at S$2.66 per share as at 31 December 2019. HLF share price is currently at only S$2.50 per share as at 14 July 2023 (which strangely marks a decrease in market price performance amidst the stellar FY2022 results). At this price, HLF is currently offering an impressive dividend yield of 6.8% based on historical distribution-pls see pt 2 below for the upward revision in projection of 2023 yield given that 1st half of FY2023 should be a lot better than 1st half of FY2022 previously.
1. HLF's 5 Year Key Financial Highlights and Huge Discount of Market Price to Net Assets Per Share.
A record high of S$77.1Mil was retained by HLF in FY2022 relative to prior years of S$43.4Mil in FY2021 and also pre-COVID 2019 of S$36.1Mil. Its Net Assets ("NTA") Per Share is S$4.55 per share as at 31 December 2022. This is a stunning +82% premium over its current share price of S$2.50 per share as at 14 July 2023. I expect the NTA per share for the 1st half ending 30 June 2023 to go up even further given the higher interest rate environment and the higher NIM.
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| Extract of AGM and Shareholder Query to HLF's Chairman Mr Kwek Leng Beng |
Unfortunately, the current senior management of HLF does not seemed to be too keen to unlock the value for its heavily discount market price-please see above screenshot AGM extract. I do not want to speculate too much on the "strange" response but personally, I think that there are a number of actions that can be done to unlock share price such as share buybacks, increase dividends payout, or corporate action like privatization or selling off to a 3rd party.
2. Annualised Forward Dividend Yield To Cross Over 7.3% In FY2023
Personally, I would expect HLF to be giving out interim dividends of S$0.05 per share due to expected better results for 1H FY2023. Using historical 2nd half dividends of FY2022 of S$0.1325, this will give an annualised dividends of S$0.1825 and an yield of 7.3%. I am also of the view that the good old days of low and cheap financing rates are over and that higher interest rates is here to stay which will benefit HLF.
Parting Thoughts
The bad news here is that HLF has always been trading at a discounted fraction of its NTA for many years. The market price of other financial institutions like Development Bank of Singapore, United Overseas Bank and Overseas Chinese Banking Corporation have generally always been at a premium of over 1 times to their respective NTAs- so some might call holding on to HLF as a value trap.
Furthermore, I do not think that Hong Leong Group will want to trigger any sell-off of HLF as long as Mr Kwek Leng Beng is still helming Hong Leong- his reply at AGM regarding the abnormally low share price is as good as no reply. Nevertheless, I think that in 4-5 years time, once there is a change in new generational leadership at Hong Leong Group, the new senior management team may decide to eventually sell off HLF to the local banks given that its competitive advantage is limited relative to the local big 3 financial institutions. The huge discount of 82% of HLF market price to its NTA just does not make logical sense without taking corporate action to enhance value to all shareholders.
P.S: For those holding on to HLF, please do share your personal outlook and perspective over this lacklustre stock that remains in a slump.
(Note: I am currently vested in 10,000 shares of HLF- started acquiring its shares in different tranches from the beginning of 2023).
HLF is a finance company and not a bank. So is comparing them suitable? I'm a client for over 2 decades ame chit chat with their friendly branch manager sometimes. The main client are SMEs amd Mum & Pa savers and the older generation like me, not your big MNCs and HNWIs. So the risk profile is definitely higher. This may be the reason they are very conservative. To expect that value will be unlocked will need many bold moves which I don't think will happen. It has a purpose within the Group to facilitate financing across various divisions of business. As for next generation of leader, my guess is It will.be a Kwek again, like.CDL. Lol..Above are just my personal view as a client and also a supplier to their Malaysia Semicon business.
ReplyDeleteHi Henry, how have you been? Thanks for dropping by and sharing your thoughts on HLF.
Delete1. Yup, agree with you that HLF is not a bank. Nevertheless, that is the benchmark (my personal thoughts only) using the broader grouping of financial institution as a proxy regarding its valuation and I see its business operations as a good fit for the local banks to make an attractive bid for it.
2. Also wholly agree with you that most likely the Kwek family will want to keep it within the Hong Leong Group even if the 82 years old Mr Kwek Beng Leng decides to retire and appoint a new successor. :) For now, I am ok to hold on to it for the expected higher dividends for FY2023 just for passive income purpose. If someday, the future new mgt team decides to spin it off to only concentrate on their core property business, then it will be an extra bonus for all shareholders.
Hi BK
ReplyDeleteOnce in a while.i like to kaypoh a bit. Hope you don't mind. :)
Actually, the Group also owns a bank called Hong Leong Bank listed in KLSE.
HLF is definitely a well run finance company with track records amd paying dividend over decades. I may invest in it some day if Mr Market give me a chance.
Haha....no worries Henry. I like to hear your perspectives and also additional information provided. It benefits and helps me a lot to know more about the investee company. HLF reminds me of another listed company, Haw Par Corp, that is closely related to UOB and which is also at a huge discount to NTA.
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