Tuesday, Feb 08, 2005
MARC has reaffirmed the short-term rating at MARC-2 and concurrently upgraded the long-term rating from A- to A of Hong Leong Credit’s (HLC) commercial papers and Medium-Term Notes programme respectively. This reflects the improved fundamentals of HLC’s key subsidiaries as well as the improved capital structure of the company. The rating is moderated by the competitive banking and finance environment and the potential limitations on dividend upstreaming from the subsidiaries to HLC.
In an effort to become a pure financial services group, HLC underwent a capital distribution of its 49.0% owned Hong Leong Properties Bhd (HLP) shares to its shareholders in July 2003, with the residual HLP shares held after the exercise disposed off in August 2003, making HLC Group a financial services holding company. With this, HLC Group is involved in three major businesses, namely banking and finance; stock and share brokerage and insurance.
HLC actively manages and provides strategic direction to its subsidiaries in terms of business growth and profitability as well as dividends upstreaming. The HLC Group posted an aggregate revenue of RM2,539.6 million in FY 2004, 3.2% higher than the previous year, on improved contributions from the insurance and securities businesses. With the group’s overall profit margin under pressure, higher operational expenditure and loan loss provisioning, group pre-tax profit correspondingly dipped 10.4% year-on-year to RM719.0 million.
As a holding company, the primary cash generation avenue of HLC is from dividend receipts as well as the receipts of investment income. The company’s core cash flow interest coverage strengthened during the year to 11.3 times, almost doubling from the previous year’s 6.1 times, owing to the high dividend receipt from its banking and finance business.
HLC company’s debt-equity ratio in the past four years has been fairly stable. Resulting from the capital distribution of HLP, HLC’s shareholders’ funds were reduced by 10.2% to RM1,614.6 million. Despite this, efforts at debt reduction eased the group-wide and company debt-equity ratio further to 0.1 and 0.3 times respectively. HLC’s double leverage ratio also moderated lower from 2.3 to 2.0 times in FY 2004.
Despite the year’s lower earnings performance, MARC believes HLC’s source of revenue and pre-tax profit will remain predominantly dependent on the banking and finance arm, which contributed more than 80.0% of HLC Group’s revenue since FY 1999. Going forward, MARC anticipates revenue from the banking and finance segment to remain under pressure, in light of market competition; whilst the earnings seen by the securities business could potentially be in for a fluctuating ride. As for the insurance segment, MARC expects the continued strengthening of the franchise to eventually be a stable contributor to the group.
In an effort to become a pure financial services group, HLC underwent a capital distribution of its 49.0% owned Hong Leong Properties Bhd (HLP) shares to its shareholders in July 2003, with the residual HLP shares held after the exercise disposed off in August 2003, making HLC Group a financial services holding company. With this, HLC Group is involved in three major businesses, namely banking and finance; stock and share brokerage and insurance.
HLC actively manages and provides strategic direction to its subsidiaries in terms of business growth and profitability as well as dividends upstreaming. The HLC Group posted an aggregate revenue of RM2,539.6 million in FY 2004, 3.2% higher than the previous year, on improved contributions from the insurance and securities businesses. With the group’s overall profit margin under pressure, higher operational expenditure and loan loss provisioning, group pre-tax profit correspondingly dipped 10.4% year-on-year to RM719.0 million.
As a holding company, the primary cash generation avenue of HLC is from dividend receipts as well as the receipts of investment income. The company’s core cash flow interest coverage strengthened during the year to 11.3 times, almost doubling from the previous year’s 6.1 times, owing to the high dividend receipt from its banking and finance business.
HLC company’s debt-equity ratio in the past four years has been fairly stable. Resulting from the capital distribution of HLP, HLC’s shareholders’ funds were reduced by 10.2% to RM1,614.6 million. Despite this, efforts at debt reduction eased the group-wide and company debt-equity ratio further to 0.1 and 0.3 times respectively. HLC’s double leverage ratio also moderated lower from 2.3 to 2.0 times in FY 2004.
Despite the year’s lower earnings performance, MARC believes HLC’s source of revenue and pre-tax profit will remain predominantly dependent on the banking and finance arm, which contributed more than 80.0% of HLC Group’s revenue since FY 1999. Going forward, MARC anticipates revenue from the banking and finance segment to remain under pressure, in light of market competition; whilst the earnings seen by the securities business could potentially be in for a fluctuating ride. As for the insurance segment, MARC expects the continued strengthening of the franchise to eventually be a stable contributor to the group.