SINGAPORE (April 28): DBS Vickers Securities is maintaining its “buy” call on Hong Leong Finance with an unchanged target price of $3.20, after the financial company (finco) on Thursday announced a 13.2% on-year growth in 1Q earnings to $16.5 million.
DBS is the only broker covering the stock.
(See also: Hong Leong Finance 1Q earnings up 13.2% to $16.5 mil)
In a Friday report, lead analyst Sue Lin Lim notes how MAS’ rule relaxation in Feb this year has opened new merger and acquisition (M&A) opportunities for fincos in Singapore, as the central bank’s move lifted the limits on uncollateralised loans as a percentage of capital funds and liberalised its existing policy to foreign takeover of a finco.
As the largest of the three existing fincos in Singapore, Hong Leong Finance is poised to benefit upon the new rules’ full implementation, says Lim.
“Hong Leong Finance was already the first finco allowed to offer business current accounts, subject to various conditions prior to the MAS’ rule relaxation. Going forward, positive catalysts could also come from cheaper funding if Hong Leong Finance is able to hold institutional deposits like the banks, thereby allowing [it] to act as the ‘go-to-bank’ for various transactions for SMEs,” she elaborates.
In the analyst’s view, company’s loan contraction as seen over FY16 has bottomed out, such that its loans are set to grow amid signs of a recovering economy to an estimated 3.5%. There should also be a net interest margin (NIM) uptick should US Fed rate hikes translate into rising SIBOR yields in 2H17, she adds.
“We remain optimistic about selected growth industries for Hong Leong Finance, such as medical and equipment financing, which continued to see high growth rates in the last few years. We also expect to see vehicle loan growth given the relaxation of rules on loan-to-value ratios and loan tenure, and unwavering interest in the luxury cars segment,” concludes the analyst.
As at 11:15am, shares of Hong Leong Finance are trading 1 cent higher at $2.78.
