Stock Name: HLFG
Company Name: HONG LEONG FINANCIAL GROUP BHD
Hong Leong Financial Group Bhd
(Aug 10, RM12)
Initiating coverage at RM11.98 with buy rating and target price of RM14: What Hong Leong Financial Group (HLFG) offers is not just an investment alternative to 64%-owned Hong Leong Bank, but also an avenue to participate in the rapidly expanding life and general insurance units as well as investment banking activities of the Hong Leong Group. We initiate coverage on HLFG with a 'buy' and a sum-of-parts (SOP) target price of RM14.
Hong Leong Bank ('hold', TP: RM14.10) has awakened to a new chapter and is embarking on a new course with its acquisition of EON Capital Bhd's assets.
Attractive pricing aside, there are various value propositions offered by this M&A, not least being the emergence of the fourth largest banking group in the country with greater presence in the retail banking space. The enlarged entity will have a more extensive distribution network, a more balanced loan portfolio, and a more formidable presence in the SME and credit card markets.
Annualised regular life premiums growth at 70%-owned Hong Leong Assurance (HLA) has outpaced that of the industry, with a compound annual growth rate of 39% over the past four years (industry: 15%). HLA is presently the largest domestic life insurer by new regular premium sales. Confidence in the future of HLA is reflected in the recent disposal of a 30% stake in this unit to Japan's Mitsui Sumitomo Insurance Co (MSIJ) for a hefty price-to-book (P/BV) value of 6.5 times.
The strategic partnership with MSIJ also involved the sale of HLFG's entire general insurance business to MSIG Insurance (Malaysia) Bhd in exchange for a 30% stake in the enlarged entity. The merger will not only allow this division to benefit from expertise transfer from Japan's largest general insurer, it has now attained greater economies of scale and is in firm contention to be the largest general insurer in Malaysia.
Valuations are undemanding at the group level, with the stock trading at a CY12 price-earnings ratio (PER) of 10.6 times and P/BV of 1.5 times (return on equity: 14.7%). In fact, HLFG's current market cap merely reflects the value of Hong Leong Bank and places no value on its other assets. At our TP, HLFG would trade at a prospective CY12 PER of 11.9 times and P/BV of 1.7 times. ' Maybank IB Research, Aug 10
This article appeared in The Edge Financial Daily, August 11, 2011.
Company Name: HONG LEONG FINANCIAL GROUP BHD
| Research House: MAYBANK | Price Call: BUY | Target Price: 14.00 |
Hong Leong Financial Group Bhd
(Aug 10, RM12)
Initiating coverage at RM11.98 with buy rating and target price of RM14: What Hong Leong Financial Group (HLFG) offers is not just an investment alternative to 64%-owned Hong Leong Bank, but also an avenue to participate in the rapidly expanding life and general insurance units as well as investment banking activities of the Hong Leong Group. We initiate coverage on HLFG with a 'buy' and a sum-of-parts (SOP) target price of RM14.
Hong Leong Bank ('hold', TP: RM14.10) has awakened to a new chapter and is embarking on a new course with its acquisition of EON Capital Bhd's assets.
Attractive pricing aside, there are various value propositions offered by this M&A, not least being the emergence of the fourth largest banking group in the country with greater presence in the retail banking space. The enlarged entity will have a more extensive distribution network, a more balanced loan portfolio, and a more formidable presence in the SME and credit card markets.
Annualised regular life premiums growth at 70%-owned Hong Leong Assurance (HLA) has outpaced that of the industry, with a compound annual growth rate of 39% over the past four years (industry: 15%). HLA is presently the largest domestic life insurer by new regular premium sales. Confidence in the future of HLA is reflected in the recent disposal of a 30% stake in this unit to Japan's Mitsui Sumitomo Insurance Co (MSIJ) for a hefty price-to-book (P/BV) value of 6.5 times.
The strategic partnership with MSIJ also involved the sale of HLFG's entire general insurance business to MSIG Insurance (Malaysia) Bhd in exchange for a 30% stake in the enlarged entity. The merger will not only allow this division to benefit from expertise transfer from Japan's largest general insurer, it has now attained greater economies of scale and is in firm contention to be the largest general insurer in Malaysia.
Valuations are undemanding at the group level, with the stock trading at a CY12 price-earnings ratio (PER) of 10.6 times and P/BV of 1.5 times (return on equity: 14.7%). In fact, HLFG's current market cap merely reflects the value of Hong Leong Bank and places no value on its other assets. At our TP, HLFG would trade at a prospective CY12 PER of 11.9 times and P/BV of 1.7 times. ' Maybank IB Research, Aug 10
This article appeared in The Edge Financial Daily, August 11, 2011.
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