Apart from the 3 Singapore banks (i.e. DBS, UOB, and OCBC), I am also invested in Hong Leong Finance (SGX:S41) – in fact, this is the very first company I added to my long-term investment portfolio when I made the decision to start building one back in August 2019 (you can check out all the companies I’ve invested in here.)

The financial institution have published its 2019 annual report for the most recent financial year ended 31 December 2019 on 09 April 2020. As a shareholder of the company, I have studied the entire report to learn about the latest updates from the management, and in this post, I will be sharing the most important pointers for fellow shareholders to take note of (for the benefit of those who do not have the time to go through the report):

Summary of Chairman Kwek Leng Beng’s Statement to Shareholders:

  • Group profit after tax attributable to shareholders in FY2019 amounted to S$103.1m (FY2018: S$118.3m), equivalent to 23.1 cents/share (FY2018: 27 cents/share.) The 12.9% year-on-year (y-o-y) drop was due to net loss allowances of doubtful debts amounting to S$1.6m in FY2019, against net recoveries of S$2.2m in FY2018.
  • Loans and advances (before loss advances) was up 12.4% y-o-y to S$11.57b (FY2018: S$10.30b.)
  • Deposits and balances of customers increased by 8.5% y-o-y to S$12.31b as at 31 December 2019, and there are no bank borrowings outstanding.
  • Group’s shareholders’ funds totalled S$1.91b as at 31 December 2019 (FY2018: S$1.87b), equivalent to S$4.28/share (FY2018: S$4.20/share.)
  • A final dividend of 10.0 cents/share, same as last year, was declared by the Board, subjected to approval by shareholders at the forthcoming Annual General Meeting (AGM.)
  • During the year (i.e. FY2019), the financial institution journeyed with SMEs to assist them in sales growth and productivity gain through business digitisation, strengthened their product range to help underserved SMEs (where it launched a new SME Property Loan offering 6-monthly step-up board rates, and this unique gradual rate change allowed SMEs to better manage budgeting for their biggest asset – their commercial property; such package is Singapore’s first and only, and it has been awarded the 2019 “Best Mortgage Loan of the Year, Singapore” by Asian Banking & Finance), created a Business Seasonal Loan to help cash-strapped SMEs bridge their seasonal financing needs to meet higher festive sales demand. The financial institution also teamed up with Millennium Hotels & Resorts to launch an Exclusive Privileges Loyalty Programme to help SMEs manage entertainment costs.
  • To address the problem of deposits interest rates trending downwards in the final quarter of 2019, the financial institution created a new rate feature called Renewal Rate Lock-In for selected short-term Fixed Deposits, with the option of renewing their deposits at the same rate as when they first placed; this scheme proved to be very popular with younger customers.
  • Hong Leong Finance have also leveraged a strong referral network of property agents and actively sought new customers to offer their flexibly home financing options. They have also fortified rapport with their key car partners to deliver customer-centred car loan packages to their customers, resulting in business market share growth.
  • In terms of the outlook in the year 2020 ahead, the Chairman cited that while uncertainties in geopolitics, as well as Covid-19 outbreak may have contributed to sluggish interest rates, and weak global economic growth, the financial institution serves domestic customers only, and have no operations in China or overseas and as such, the economic impact from Covid-19 is somewhat cushioned.
  • Moving forward, the financial institution will pursue their transformation journey to remain relevant to their customers and at the same time, continue to strengthen risk management, streamline and simplify operations using technology, innovate responsibly, and grow their partnerships and customer relationships.

Key Financial Statistics (FY2018 vs. FY2019):

The following are some of the key financial statistics for financial year 2019, compared against the previous financial year (i.e. FY2018):

FY2018FY2019% Variance
Net Interest Income/
Hiring Charges (S$’mil)
$212.1m$201.7m-4.9%
Fee & Commission
Income (S$’mil)
$15.4m$13.7m-10.6%
Other Operating Income
(S$’mil)
$0.6m$0.3m-47.2%
Income before
Operating Expenses (S$’mil)
$228.1m$215.7m-5.4%

Net interest income/hiring charges went down by 4.9% on a y-o-y basis, driven by an increase in cost of fund on higher deposit base to support loan growth, coupled with a drop in net interest margin from 1.7% in FY2018 to 1.5% in FY2019.

Fee and commission income declined by 10.6% y-o-y mainly attributed to lower fee income earned from lending activities.

Finally, the financial institution’s other operating income slumped 47.2% on a y-o-y basis as a result of the absence of gain on the disposal of plant and equipment recorded in the previous financial year (i.e. FY2018.)

Extension of Time to Hold the AGM:

Initially scheduled to be held on 29 April 2020, but in light of the Ministry of Health’s tighter measures to minimise the spread of Covid-19 in the community, Hong Leong Finance have applied for an extension of time to hold its AGM.

At the time of writing, there is still no confirmed date and time the AGM will be conducted. But from my understanding, it will be conducted no later than 29 June 2020.

As the payment of final dividend required the approval of shareholders during the AGM, the ex-date, record date, and pay out date will be revised.

I will be posting an update on The Singaporean Investor’s Telegram broadcast group (you can follow the latest updates here), as well as on my InvestingNote profile (you can follow me here) as soon as I have the confirmed date and time the financial institution will be conducting its AGM.

You can read the note in full here.

Download Your Copy of Hong Leong Finance’s 2019 Annual Report:

You can download your digital copy of Hong Leong Finance’s latest annual report for financial year 2019 ended 31 December 2019 here.

Disclaimer: At the time of writing, I am a shareholder of Hong Leong Finance Limited.

 

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