Hong Leong Finance Limited (SGX:S41) was the first company in my long-term investment portfolio, and I have remain invested in the financial institution since late-August 2019. In case you’re wondering, one of the reasons why I added the company to my long-term investment portfolio was because of its largely stable financial results over the years.
Yesterday (31 March 2021), the financial institution published its latest annual report for the financial year 2020 ended 31 December 2020, along with the notice of annual general meeting (AGM.)
As a shareholder, annual reports are an important read to keep abreast of the company’s latest developments, along with the management’s outlook for the coming year ahead. However, I understand that because of work commitments, some investors may not have the time to go through the entire report (which consists of 100+ pages) – as such, in this post, you will find a summary of the most important points from the annual report you need to take note of, details about its upcoming AGM, as well as my personal thoughts to share.
Let’s begin…
Chairman Kwek Leng Beng’s Statement
- 2020 was an unprecedented year with the global Covid-19 pandemic, with businesses and individuals deeply affected by the stringent movement control, economy lockdown, as well as border restrictions to curb the spread of the Coronavirus.
- In-line with the Singapore government’s efforts to promote social distancing, some of Hong Leong Finance’s branches and SME centres were temporarily closed, with part of its workforce working from home.
- To meet their customers’ financial needs (without the need for them to physically visit the branches), Hong Leong Finance introduced online application for customers seeking loan relief during this challenging time, accepted online instructions for deposit transactions including Fixed Deposit renewal, took in funds transfer via PayNow for deposit placement and funds withdrawals.
- Support for individual customers such as mortgage loan moratoriums and loan period extensions were provided to help them tide through the economic difficulties; for the small and medium-sized enterprises (SMEs), the financial institution offered collateral-free loans at competitive interest rates with processing fee waived.
- Given the uncertainty in economic recovery, and to address its customers’ concerns sustainably Hong Leong Finance created innovative financing solutions based on the market dynamics, such as the introduction of a new flexible first-year-interest-payment-only Hire Purchase schemes for medical equipment and selected car makes.
- Moving forward, the management is cautiously optimistic that the operating environment for 2021 will improve with the containment of the pandemic both globally as well as domestically, mainly because of promising vaccine developments.
Summary of Hong Leong Finance’s Financial Performance
- Net interest income fell 27.2% to S$146.8m (FY2019: S$201.7m) driven by a compressed net interest margin as the dip in interest yields outweighed the saving in lower cost of fund amid a falling interest rate.
- Fee and commission income decreased 25.4% to S$10.2m (FY2019: S$13.7m) with lower fee income earned from both lending and non-lending activities in 2020.
- Total operating expenses declined 15.4% to S$76.3m (FY2019: S$90.2m) as a result of the budget relief measures from the Singapore government, as well as the tightening of staff compensation and discretionary expenses.
- Net allowances for loans and other financial assets for 2020 rose to S$7.7m (FY2019: S$1.6m) to protect against the possible downside risks in the current economic condition, as well as higher credit loss allowances for credit-impaired loans. This led to its net profit to decline by 38.0% to S$63.9m (FY2019: S$103.1m.)
Notice of AGM
Due to the current Covid-19 situation, Hong Leong Finance will be conducting its 61st AGM for FY2020 electronically on Thursday, 29 April 2021, at 11.00am.
Shareholders of the financial institution can sign up to attend the meeting here (the deadline to register will be on 26 April 2021, at 11.00am.)
I have signed up to attend the AGM, and for the benefit of those who aren’t able to attend, I will be posting a summary of it in due course.
Closing Thoughts
As I have mentioned when I reviewed the financial institution’s fourth quarter and full-year results back in February (you can read the post in full here), the weaker performance was largely within my expectations in light of the massive headwinds posed by the ongoing Covid-19 pandemic.
Before I end, there are two things I’d like to highlight – the first is on their net interest income, where the financial institution will make calibrations on their lending and funding strategies to enhance their earnings in light of the sustained low interest rate environment; the second is on their exposure to riskier sectors which are significantly impacted by the ongoing pandemic – where I understand that the exposure remains slow, and that their overall portfolio is largely collateralised.
Finally, on dividends, particularly whether normal payout will resume – there was no mentioning of it in its annual report; we need to first wait for directions from the Monetary Authority of Singapore (apart from banks, financial institutions like Hong Leong Finance were also advised to pay out 60.0% of the amount paid out in FY2019 for the year 2020.)
With that, I have come to the end of my summary of Hong Leong Finance’s annual report. I hope you find the information above useful and, with tomorrow being Good Friday, I would like to take this opportunity to wish all my Christian readers a very happy and Blessed Easter, and to my non-Christian readers, here’s wishing you a great long weekend ahead with your loved ones.
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Disclaimer: At the time of writing, I am a shareholder of Hong Leong Finance Limited.
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