Hong Leong Finance

Okie.. Okie...

I understand biz is tough, so I lower my dreams and ask for 70%-80% payout instead. Ya, you keep the other 20%-30% defend your EPS (from diminishing margins amidst higher risk environment) and grow the NAV. But, at least have to give me a more respectable 6%-7% yield mah...

OMG, I went to stare at their Q311 financials again and realised they also had quite a fair bit of write-back of provisions so far. So, I was wrong in my earlier post to say that EPS will be flat. Looks set to be -17% lower @ ~23ct (Crystal Ball is still projecting the same EPS).

HLF might as well used cheap money and invest in stocks themselves!

(27-02-2012, 10:53 PM)propertyinvestor Wrote: HLF might as well used cheap money and invest in stocks themselves!

you should read finance company act before making such statement....

(27-02-2012, 05:58 PM)KopiKat Wrote: FY11 results will be out tomorrow (28-Feb). Time for a spot of fun and crystal ball gazing again.

EPS should be ~23ct. I consider it to be flat (vs FY10 EPS = 27.7ct) if I were to remove the write backs (of provisions) for FY10. Don't ask me when their SME initiatives are going to start bearing fruits as I see their Revenues dropping every year since FY07. Too bad they'd not been aggressive in the Home Loan market and had not ridden the Property Bull, unlike the Big 3.

Dividends for 2H11 is hard to gaze from my Crystal Ball as I don't see any pattern in their payout for the past 6 years. I'm guessing the minimum to be 8ct (same as last year) but I'm dreaming that they can pay up to 100% of EPS, which is 19ct (4ct paid out for 1H). Ya, someone said to me before.. dream on...

FY11 Results are out. Scorecard,

EPS = 22.65ct (Actual) vs 23ct (My Est.) ie. -1.55% off
Div = 8ct (Actual) vs 8ct (Lower Limit of My Est.) ie. Correct but Dreams of more didn't come true
NAV = $3.63 (FY11) vs $3.52 (FY10) ie. Increasing as per My Est. in another post

I don't think Hong Leong Finance will pay almost 100% of its profit as dividend.

Year 2005 - 2007 was exceptional as Hong Leong Finance was utilizing its S44 tax credit. or even before Yr 2005. I can't remember which year IRAS announced of return of S44 tax credit

(28-02-2012, 08:16 PM)freedom Wrote: I don't think Hong Leong Finance will pay almost 100% of its profit as dividend.

Year 2005 - 2007 was exceptional as Hong Leong Finance was utilizing its S44 tax credit. or even before Yr 2005. I can't remember which year IRAS announced of return of S44 tax credit

If we were to remove the Special Dividend component (most likely clearing S44 Credits) for those years, the payout rate was,

FY05 = 98.9%
FY06 = 81.7%
FY07 = 65.8%

For FY08, they were hit by the huge provisions + write-offs,

FY08 = 28.2%
FY09 = 31.7%
FY10 = 43.3%
FY11 = 53.0%

My dream of a bigger dividend payout rate did come true ie. from 43.3% (FY10) to 53% (FY11) but that's because the EPS had gone down. Maybe in FY12, the payout rate will increase to 60% but then again, EPS would have most likely dropped to 20ct to give the same Total Dividend of 12ct. Haha..

I look at more in a different angle. Hong Leong Finance would maintain at least 12 cents dividend if the market outlook was not too bad like what happened in 2008 - 2009. Whether Hong Leong Finance would pay more dividend depends on how much more profit it can generate from its operation and how much more they would like to expand. The arena for finance companies in Singapore is not that big. Soon enough, Hong Leong Finance would reach its limit as a finance company.

Can a kind soul explain the fundamental difference between a bank and a finance company?

Lending and borrowing is a commodity business. But HLF does not have scale compare with the Big 3, so HLF is already at a natural big disadvantage, higher overheads? Views?

HLF provides a lower service than Big 3 because: to retail clients it offers less branches, to SMES it does not offer as wide range of services, so HLF myst offer higher deposit rates? Views?

If HLF offer higher deposit rates, then it must charge higher lending rates. To charge higher lending rates, you must target customers with higher-risk-profile e.g. small property developers. So the credit risk to HLF is higher? Views?

So can I say that as a finance institution, its quite a inferior company? But just that because of current gap between price and NAV, it could be a good investment? Views?

Thank you.

It is not every company big or small can get a loan from the big 3. When liquidity is ample like now, big 3 will go after SMEs as well. When liquidity is tight, SMEs can forget about getting a loan from big 3. If I am not wrong, that's where the finance companies come in. So low interest rate and ample liquidity is big enemy of the finance companies.

the deposit rate for finance company is much higher than the big 3. If I am not wrong, finance company can only issue time deposit like 1-year etc, and the customer can't withdraw before maturity, also, there is no ATM or any other facility. So they are bound to have a higher deposit cost.

risk is definitely higher, but finance companies might only be able to offer secured loans(the unsecured loan amount is very small). If the practice is sound, finance companies can earn enough return on not too high a risk.

(30-06-2012, 11:31 AM)freedom Wrote: It is not every company big or small can get a loan from the big 3. When liquidity is ample like now, big 3 will go after SMEs as well. When liquidity is tight, SMEs can forget about getting a loan from big 3. If I am not wrong, that's where the finance companies come in. So low interest rate and ample liquidity is big enemy of the finance companies.

the deposit rate for finance company is much higher than the big 3. If I am not wrong, finance company can only issue time deposit like 1-year etc, and the customer can't withdraw before maturity, also, there is no ATM or any other facility. So they are bound to have a higher deposit cost.

risk is definitely higher, but finance companies might only be able to offer secured loans(the unsecured loan amount is very small). If the practice is sound, finance companies can earn enough return on not too high a risk.

I am new to financial industrial.

The are myth saying that finance companies are less protected (for depositors) vs bank. Not sure it is true.

Does finance companies need to comply with the tiered Capital Adequacy Ratio (CAR) imposed by MAS?