HLFG: Robust Profit Growth Across Banking and Insurance Fuels Financial Group Performance

A leading financial group reported that its 12-month FY25 core earnings largely met expectations, achieving 97.3% of the investment bank’s estimate and 96.4% of consensus. Normalized earnings for the period increased by 3.9% year-on-year (YoY) to RM3.23 billion, primarily driven by strong contributions from its commercial banking and insurance segments.

Performance Review

Total income for 12MFY25 saw a robust 8.5% YoY growth, propelled by stronger Net Interest Income (NII) and Non-Interest Income (NOII). The NOII benefited significantly from higher fee income, increased insurance and takaful income, as well as gains from trading, investment, and foreign exchange activities, alongside higher Islamic banking income. Earnings were further bolstered by the resilient asset quality of its commercial banking arm.

The commercial banking segment’s profit before tax (PBT) rose 4% YoY, attributed to strong NII/NOII performance and stable asset quality. Similarly, the insurance segment’s PBT grew 10.1% YoY, supported by improved life/family takaful service results and overseas general insurance income. In contrast, the investment banking segment’s PBT experienced a decline of 35.6% YoY, primarily due to weaker equity mark-to-market gains and reduced income from stockbroking and fund management activities. Quarter-on-quarter, core net profit in 4QFY25 saw a 9.0% increase, driven by higher total income and optimized operational expenses (OPEX).

Banking Segment Highlights

Loan growth within the commercial banking unit accelerated to 7.8% YoY, up from 7.2% in the previous quarter. The Net Interest Margin (NIM) also improved by 4 basis points YoY to 1.90% in 12MFY25. Domestic loan growth outpaced the industry at 8% YoY, primarily led by strong demand in transport vehicle and community SME loans. The asset quality remained robust, with a low gross impaired loan (GIL) ratio of 0.54% and a normalized credit cost of just 0.01%.

Insurance Segment Strengths

The life and family takaful gross premiums for the insurance division grew 4.2% YoY, with new business premiums surging an impressive 17.6%. This surge was mainly fueled by strong bancassurance and agency contributions. The average case size for insurance products also expanded by 30.8% YoY, with savings and protection plans accounting for 65% and 35% of annualized premiums, respectively. However, the Contractual Service Margin (CSM) balance declined to RM1.76 billion from RM2.01 billion due to a RM225 million impact from changes in medical pricing assumptions and regulatory premium deferment on medical insurance.

Outlook and Valuation

The investment bank has reaffirmed its “BUY” recommendation, although the target price (TP) has been revised to RM21.60 per share from RM23.80. This revision largely stems from a lower Sum-of-Parts (SOP) valuation, reflecting a revised estimate for lower CY26 shareholders’ funds in the commercial banking subsidiary after accounting for actual FY25 results, alongside higher OPEX estimates and a lower share of profit from associates.

The stock is considered attractively valued, trading at an appealing FY26 Price-to-Earnings (PE) multiple of 5.3x and a Price-to-Book (PB) ratio of 0.5x. Key risks to projections include a potential slowdown in global economic growth impacting loan demand and premium expansion, an unforeseen rise in funding costs, elevated insurance claims, and prolonged high interest rates in developed markets affecting non-interest income.