Broker: Maybank Investment Bank Berhad
Date of Report: May 29, 2025
Hong Leong Financial Group: In-Depth Analysis of Q3 FY2025 Results, Outlook, and Valuation
Executive Summary
Hong Leong Financial Group (HLFG) reported its third-quarter results for FY2025, revealing earnings below market expectations. Despite this, Maybank Investment Bank Berhad maintains a “BUY” recommendation, albeit with a reduced target price. This comprehensive article details HLFG’s financial performance, subsidiary contributions, risks, and the outlook for investors.
HLFG: Overview and Strategic Holdings
HLFG is a diversified financial conglomerate with significant stakes in key financial entities:
- Hong Leong Bank (HL Bank): 64% stake
- Hong Leong Assurance (HLA): 70% stake
- MSIG Insurance: 30% stake
- Hong Leong Capital: 81% stake
Other notable holdings include HL MSIG Takaful and various subsidiaries, making HLFG a core player in Malaysia’s financial sector.
Share Price Performance and Market Statistics
| Metric |
Value |
| Share Price (May 29, 2025) |
MYR 16.70 |
| 12-month Target Price |
MYR 21.50 (+29%) |
| Previous Target Price |
MYR 22.70 |
| Market Capitalisation |
MYR 19.2B (USD 4.5B) |
| Issued Shares (m) |
1,148 |
| 52-Week High/Low (MYR) |
20.10 / 16.00 |
| Free Float (%) |
25.4 |
| Major Shareholders |
Hong Leong Company (Malaysia) Bhd (51.9%), Guoco Group Ltd (5.2%), Employees Provident Fund |
The stock has seen a moderate decline in recent months, with a 1-month absolute return of -3%, 3-month return of -9%, and a 12-month return of -5%.
Q3 FY2025 Financial Performance: Key Highlights
HLFG’s core net profit for 3QFY25 was MYR 818 million, flat year-on-year and down 2.5% quarter-on-quarter. The 9-month cumulative net profit reached MYR 2.5 billion, up 4.8% year-on-year but falling short of expectations due to weaker-than-expected performance from HL Bank.
- HL Bank contributed 88% of group pretax profit
- HL Assurance contributed 10%
- HLFG’s FY25E–FY27E earnings were revised down by 3-4% to reflect lower earnings from HL Bank
Segmental Analysis: Q3 FY2025
| Segment |
3Q25 (MYR m) |
3Q24 (MYR m) |
% YoY |
2Q25 (MYR m) |
% QoQ |
9MFY25 (MYR m) |
9MFY24 (MYR m) |
% YoY |
| Commercial Bank |
1,262.2 |
884.2 |
+42.7 |
1,000.4 |
+26.2 |
3,227.4 |
2,665.6 |
+21.1 |
| Investment Bank |
15.3 |
27.1 |
-43.4 |
19.4 |
-20.9 |
56.5 |
73.9 |
-23.6 |
| Insurance |
93.3 |
165.5 |
-43.6 |
142.0 |
-34.3 |
453.4 |
379.5 |
+19.5 |
| Other Segments |
66.6 |
(4.3) |
NM |
(0.6) |
NM |
54.7 |
(11.3) |
NM |
| Associates/JVs |
(63.4) |
412.8 |
NM |
414.2 |
NM |
744.7 |
1,260.3 |
-40.9 |
Company-by-Company Results and Analysis
Hong Leong Bank (HL Bank)
HL Bank’s 9MFY25 core net profit came in at MYR 3.29 billion (+4% YoY), but this represented only 70% of the full-year forecast. The main reasons for the shortfall were:
- Lower associate contributions, primarily due to a reduced stake in Bank of Chengdu (BOCD) from 19.8% to 17.8% after the full conversion of BOCD’s convertible bonds
- A higher effective tax rate
Despite the slowdown, HL Bank remains the largest profit contributor to HLFG.
Hong Leong Assurance (HLA)
HLA reported a 14% YoY decline in 9MFY25 pretax profit to MYR 489 million. The decline was attributed to:
- Lower net investment income
- Reduced share of associate profits (notably from MSIG Insurance)
Hong Leong Capital
HL Capital saw a significant 24% YoY drop in 9MFY25 pretax profit to MYR 56.5 million. This was mainly due to reduced earnings from investment banking and stockbroking activities.
MSIG Insurance
MSIG’s performance, as an associate, was also affected primarily by lower profits from its insurance operations. HLFG’s share of profits from MSIG was impacted by subdued industry performance and increased competition.
Comprehensive Financial Summary
| FYE Jun (MYR m) |
FY23A |
FY24A |
FY25E |
FY26E |
FY27E |
| Operating income |
6,477 |
6,651 |
7,202 |
7,648 |
8,114 |
| Pre-provision profit |
3,997 |
4,041 |
4,437 |
4,717 |
5,019 |
| Core net profit |
2,910 |
3,198 |
3,302 |
3,388 |
3,591 |
| Core EPS (MYR) |
2.57 |
2.82 |
2.91 |
2.99 |
3.17 |
| Net DPS (MYR) |
0.49 |
0.54 |
0.58 |
0.59 |
0.63 |
| Core P/E (x) |
6.9 |
6.1 |
5.7 |
5.6 |
5.3 |
| P/BV (x) |
0.7 |
0.7 |
0.6 |
0.6 |
0.5 |
| Net dividend yield (%) |
2.8 |
3.1 |
3.5 |
3.5 |
3.8 |
| Book value (MYR) |
23.70 |
26.22 |
26.48 |
28.84 |
31.34 |
| ROAE (%) |
11.3 |
11.2 |
10.9 |
10.7 |
10.4 |
| ROAA (%) |
1.0 |
1.0 |
1.0 |
0.9 |
0.9 |
Key Financial Ratios and Balance Sheet Highlights
- Net interest margin (FY25E): 1.87%
- Cost/income ratio (FY25E): 38.4%
- Net NPL ratio (FY25E): 0.4%
- Loan loss coverage (FY25E): 150%
- CET1 ratio (FY25E): 12.9%
- ROAE (FY25E): 10.9%
Balance sheet remains robust, with total assets expected to reach MYR 358.5 billion in FY25E, customer deposits at MYR 240.3 billion, and shareholders’ funds at MYR 30.4 billion.
Sum-of-the-Parts Valuation and Target Price Revision
Following the Q3 results, the sum-of-the-parts (SOP) derived target price was reduced from MYR 22.70 to MYR 21.50. The breakdown is as follows:
| Entity |
Shs’ Funds (MYR m) |
As at |
Multiple (x) |
Shareholding (%) |
Value (MYR m) |
Valuation Details |
| HL Bank |
40,875 |
CY25E |
1.1 |
64.4 |
29,995 |
ROE 11.1% |
| HL Assurance (EV) |
4,267 |
Jun 24 |
1.0 |
70.0 |
2,987 |
1x Embedded Value |
| MSIG |
3,189 |
Jun 24 |
1.4 |
30.0 |
1,339 |
In line with peers |
| HL MSIG Takaful |
214 |
Dec 24 |
1.0 |
65.0 |
124 |
At book value |
| HL Capital |
1,020 |
Mar 25 |
1.0 |
81.3 |
830 |
At book value |
| Holding Co Net Debt |
|
(30) |
|
| Total Sum-of-Parts |
35,245 |
|
A holding company discount of 30% is applied due to the high concentration (about 90%) of group earnings from HL Bank, which is separately listed. This results in a fair value of MYR 30.71 per share and a final target price of MYR 21.50.
Risks and Sensitivities
Key risk factors for HLFG include:
- Economic slowdown in Malaysia impacting HL Bank’s earnings
- Increased deposit competition affecting margins
- Deterioration in China’s outlook, particularly in Sichuan Province, affecting profits from Bank of Chengdu
- HL Assurance’s premium growth tied to consumer sentiment and interest rate fluctuations
- MSIG’s earnings subject to competitive insurance pricing and regulatory changes
- HL Capital’s performance linked to market volatility
Investment Ratings and Historical Perspective
- BUY: Return expected to be above 10% in the next 12 months
- HOLD: Expected return between 0% to 10%
- SELL: Expected return below 0%
Over the past 12 months, HLFG’s rating has alternated between “BUY” and “HOLD” in response to changing financial outlooks and market conditions.
Conclusion: Outlook for Investors
Despite a challenging third quarter, Hong Leong Financial Group remains a well-diversified financial conglomerate with resilient core businesses in banking, insurance, and capital markets. The reduced target price reflects realistic adjustments amid softer earnings, but strong fundamentals, robust asset quality, and prudent capital management continue to support a positive long-term outlook. Investors seeking exposure to Malaysia’s financial sector may find HLFG an attractive value proposition at current levels.
Contact Information
For further inquiries, investors can reach out to Maybank Investment Bank Berhad and its regional offices across Malaysia, Singapore, London, Hong Kong, Indonesia, India, Philippines, Thailand, and Vietnam.
