PETALING JAYA: AmInvestment Bank Research (AmInvest Research) believes Hong Leong Financial Group Bhd
(HLFG), which owns 61% of Hong Leong Bank Bhd (HLB), offers deep value and is one of the cheapest domestic listed banks following its recent 16% drop in share price.
The research house has a target price (TP) of RM33 a share on HLFG – well above its price of RM19.56 (at the time of writing) – and noted that the stock offers defensive attributes amid an uncertain backdrop.
The TP is based on 0.98 times its 2027 price to book (P/B) value forecast and is in line with RHB Bank Bhd’s and Alliance Bank Malaysia Bhd’s valuations of 1.01 to 1.04 times P/B and return on equity of 9.5% to 10%.
AmInvest Research added that the attractiveness of HLFG is driven by its holding company cash equivalent position, which continues to accrete via its 30% profit retention action.
It said HLFG’s still wide sum-of-the-parts discount of 38% versus its five-to-10-year pre-Covid average of 18% to 29%, coupled with its underappreciated dividend upside and value unlocking optionality, could also drive a re-rating over time.
“Amid an uncertain Middle East backdrop, HLFG offers a defensive shelter backed by HLB (85% profit contributor) which has a high mix of retail-centric loans that are skewed to residential mortgages, making it more insulated from inflation-driven pressures,” AmInvest Research stated in its latest report on HLFG.
Moreover, the research house expects HLB to post sequential expansion in its net interest margin on the back of lower fixed deposit repricing and sustained strength in its fee income.
