HLFG: Financial Group Posts Strong Full-Year Earnings, Buy Rating Affirmed
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation | BUY |
A prominent financial group has reported a robust performance for the fiscal year ending June 2025 (FY25), with its core net profit significantly exceeding both internal and street forecasts. The impressive results were largely attributed to enhanced cost efficiencies and improved revenue streams.
Performance Review
The group recorded a core net profit of RM3,662 million for FY25, marking a 15% year-on-year increase. This figure was 107% and 109% above the respective internal and consensus full-year forecasts, underscoring the strength of its operational execution. Key drivers for this stellar performance included substantial net writebacks, solid improvements in net interest income (NII) and non-interest income (NOII), coupled with stringent cost control measures. However, the performance of Bank of China Debt (BOCD) was noted as weaker during the period.
Quarterly Performance and Dividends
For the fourth quarter of FY25 (4QFY25), core net profit stood at RM853 million, a 24% quarter-on-quarter decline. This quarterly dip was primarily due to the absence of significant overlay writebacks that had benefited previous quarters. Despite the quarterly moderation, the group announced a total dividend per share (DPS) of 72.0 sen for FY25, translating to a payout ratio of 22%, which surpassed the expected 19%. This higher-than-anticipated dividend payout aligns with the trend observed in other major financial institutions.
Segmental Breakdown
Breaking down the performance by segments, Hong Leong Bank (HLBK) reported a 12% year-on-year growth in FY25, driven by better NII and NOII results and lower provisions, which counteracted weaker BOCD income and higher operating expenses (OPEX). Hong Leong Assurance (HLA) saw its 4QFY25 pre-tax profit (PBT) surge by 91% quarter-on-quarter to RM178 million, fueled by higher net investment income, associate income, and insurance service results. For the full FY25, HLA’s PBT grew 10% year-on-year to RM665 million, mainly from improved insurance service results. Meanwhile, Hong Leong Capital (HLC) posted a 43% quarter-on-quarter increase in 4QFY25 PBT to RM22 million, buoyed by stronger contributions from its investment banking and stockbroking divisions. However, HLC’s overall FY25 PBT was down 35% year-on-year at RM78 million due to lower contributions across all operating divisions.
Future Outlook and Risks
Management’s tone regarding the future remains optimistic. The financial group is viewed as an attractive investment, particularly given the potential for higher stable dividends. However, the bank also highlighted several key downside risks, including higher-than-expected OPEX growth, a lacklustre NOII performance, and a weak BOCD result.
Investment Recommendation
In light of the strong full-year performance and optimistic outlook, MBSB Research has maintained its “BUY” recommendation for the financial group. The investment bank has revised its sum-of-the-parts (SOTP) target price marginally to RM20.55, from the previous RM20.63. The last traded price for the stock was RM16.92, implying an expected total return of +25.7%.
