Wednesday, Jun 26, 2002
Malaysian Rating Corporation Berhad (MARC) has assigned short and long term ratings of MARC-2 and A- (single A minus) respectively to Hong Leong Credit Berhad’s (HLC) CP/MTN Programme, reflecting the strong fundamental strength of HLC’s banking and insurance subsidiaries and the expected improvement in HLC’s pro-forma double leverage and debt position. The rating is however moderated by the intense competitive landscape of the financial services industry and the potential restriction of dividends upstream from the subsidiaries to HLC.
The HLC group’s exposure to the financial sector, property and stock markets had over the years subjected earnings to wide fluctuations. For FY2001, HLC’s consolidated pre-tax profit registered a decline of 15% to RM575.5 million due to the weakened operating environment in the stockbroking industry and poorer contribution from the insurance division which was affected by write-downs on investment valuations. Latest available figures for the nine months ended 31 March 2002 showed consolidated pre-tax profit rising by 37% from the previous corresponding period to RM572.1 million on the back of improved earnings at the banking and insurance subsidiaries and its property arm, being counterbalanced by the abating losses at the stockbroking subsidiary.
The share of net dividends declared by Hong Leong Bank (HLB) attributable to HLC more than doubled to RM92.2 million in FY2001, accounting for 86% of total net dividends attributable to HLC. This follows the completion of the bank’s acquisition of Wah Tat Bank Berhad and Credit Corporation (Malaysia) Berhad in January 2001 and their maiden dividend contribution to the bank. Although non-performing loans have crept up in the last financial year to 7.5% on a three-month classification basis, HLB’s credit quality remains superior to the commercial banking industry as reflected by the lower than industry NPL ratio. However, the loan loss reserves coverage has been trending downwards, and at 44% sits amongst the lowest compared to its peers. While the bank’s loan portfolio remains broadly diversified, it has over the years built up a significant portfolio of SMI customers. With uncertainty in the manufacturing sector prevailing in the near term, HLB may face increasing credit pressures from this segment of its portfolio. The HLB Group nevertheless recorded an 18% increase in pretax profit to RM555.2 million on the back of growth in non-interest income, higher recoveries and lower specific provision charges.
Hong Leong Properties (HLPB) returned to the black in FY2001 with pre-tax profit of RM11.3 million, attributed to the one-time gain on disposal of subsidiary companies and higher profit contribution from its joint ventures. The group’s activities are expected to centre on its property development and investment divisions. HLPB’s investments in properties are not expected to experience major declines in occupancy rates, given that they are partly occupied by related companies as well as HLPB’s success at retaining a portfolio of quality tenants. Nevertheless, the significant oversupply of office space in the market is expected to exert downward pressure on office rentals/prices. The group’s strategy going forward is to restructure the asset portfolio by disposing of its low yielding assets thus freeing up cashflow for new investment opportunities. For the nine months ended 31 March 2002, HLPB recorded pretax profit of RM32.8 million compared to RM8.1 million in the previous corresponding period due to the gain from sale of Wisma Hong Leong.
The weak stock market conditions adversely impacted HLG Securities’ (HLGS) earnings with the company reverting to a loss of RM13.3 million in FY2001. Gross brokerage plunged 80% attributed to the sharp contraction in overall trading volume on the KLSE, which was exacerbated by the partial liberalization of commission rates effective September 2000. With trading volumes recovering in the nine months to 31 March 2002 and better management of operating costs, the division’s loss has correspondingly been reduced to RM0.2 million from RM23.3 million in the previous corresponding period. However, a further round of commission liberalization in July 2002 will continue to exert downward pressure on margins.
Hong Leong Assurance Bhd (HLA) registered a 66% rise in combined gross premium to RM1.16 billion for FY2001, largely attributed to the sharp increase in life division premiums arising from the launch of the EPF annuity scheme. With the scheme’s termination in May 2001, life premiums are expected to shrink dramatically in FY2002, as observed in the nine months results. As was the case in the general division, the life operation was also hit by investment losses due to the slide in stockmarket valuations, resulting in realized losses of RM5.8 million and provision of RM40.7 million for diminution in value during FY2001 for the division. The investment performance however reversed in the third quarter FY2002, which helped moderate the decline in operating surplus. Owing to weak investment returns in the past few years and prospects of a low interest rate environment, HLA had to revise the bonuses of certain of its products to strengthen its financial position.
The HLC group’s exposure to the financial sector, property and stock markets had over the years subjected earnings to wide fluctuations. For FY2001, HLC’s consolidated pre-tax profit registered a decline of 15% to RM575.5 million due to the weakened operating environment in the stockbroking industry and poorer contribution from the insurance division which was affected by write-downs on investment valuations. Latest available figures for the nine months ended 31 March 2002 showed consolidated pre-tax profit rising by 37% from the previous corresponding period to RM572.1 million on the back of improved earnings at the banking and insurance subsidiaries and its property arm, being counterbalanced by the abating losses at the stockbroking subsidiary.
The share of net dividends declared by Hong Leong Bank (HLB) attributable to HLC more than doubled to RM92.2 million in FY2001, accounting for 86% of total net dividends attributable to HLC. This follows the completion of the bank’s acquisition of Wah Tat Bank Berhad and Credit Corporation (Malaysia) Berhad in January 2001 and their maiden dividend contribution to the bank. Although non-performing loans have crept up in the last financial year to 7.5% on a three-month classification basis, HLB’s credit quality remains superior to the commercial banking industry as reflected by the lower than industry NPL ratio. However, the loan loss reserves coverage has been trending downwards, and at 44% sits amongst the lowest compared to its peers. While the bank’s loan portfolio remains broadly diversified, it has over the years built up a significant portfolio of SMI customers. With uncertainty in the manufacturing sector prevailing in the near term, HLB may face increasing credit pressures from this segment of its portfolio. The HLB Group nevertheless recorded an 18% increase in pretax profit to RM555.2 million on the back of growth in non-interest income, higher recoveries and lower specific provision charges.
Hong Leong Properties (HLPB) returned to the black in FY2001 with pre-tax profit of RM11.3 million, attributed to the one-time gain on disposal of subsidiary companies and higher profit contribution from its joint ventures. The group’s activities are expected to centre on its property development and investment divisions. HLPB’s investments in properties are not expected to experience major declines in occupancy rates, given that they are partly occupied by related companies as well as HLPB’s success at retaining a portfolio of quality tenants. Nevertheless, the significant oversupply of office space in the market is expected to exert downward pressure on office rentals/prices. The group’s strategy going forward is to restructure the asset portfolio by disposing of its low yielding assets thus freeing up cashflow for new investment opportunities. For the nine months ended 31 March 2002, HLPB recorded pretax profit of RM32.8 million compared to RM8.1 million in the previous corresponding period due to the gain from sale of Wisma Hong Leong.
The weak stock market conditions adversely impacted HLG Securities’ (HLGS) earnings with the company reverting to a loss of RM13.3 million in FY2001. Gross brokerage plunged 80% attributed to the sharp contraction in overall trading volume on the KLSE, which was exacerbated by the partial liberalization of commission rates effective September 2000. With trading volumes recovering in the nine months to 31 March 2002 and better management of operating costs, the division’s loss has correspondingly been reduced to RM0.2 million from RM23.3 million in the previous corresponding period. However, a further round of commission liberalization in July 2002 will continue to exert downward pressure on margins.
Hong Leong Assurance Bhd (HLA) registered a 66% rise in combined gross premium to RM1.16 billion for FY2001, largely attributed to the sharp increase in life division premiums arising from the launch of the EPF annuity scheme. With the scheme’s termination in May 2001, life premiums are expected to shrink dramatically in FY2002, as observed in the nine months results. As was the case in the general division, the life operation was also hit by investment losses due to the slide in stockmarket valuations, resulting in realized losses of RM5.8 million and provision of RM40.7 million for diminution in value during FY2001 for the division. The investment performance however reversed in the third quarter FY2002, which helped moderate the decline in operating surplus. Owing to weak investment returns in the past few years and prospects of a low interest rate environment, HLA had to revise the bonuses of certain of its products to strengthen its financial position.