Hong Leong not actively pursuing M&As, 4Q17 profit down 13.5%

By NG MIN SHEN / Pic By MUHD AMIN NAARUL

Hong Leong Bank Bhd (HLB) is not slotted for any mergers and acquisitions (M&As) for the time being as it is expected to focus on organic growth, while keeping up with digital advancements in the industry.

Its group MD and CEO Domenic Fuda did not rule out the possibility of partaking in an M&A, but stated that it has to be the right fit at the right time.

“If somebody came along at the right time, then we will certainly take a look, but it has to make a lot of sense in every way from synergies, price, value proposition and more. It would be hard to say no if something reasonable comes along, but it’s not our focus,” he told a media briefing on the bank’s recent financial results in Kuala Lumpur yesterday.

He added that an M&A would require a shift in focus away from the bank’s current concentration on growing its digital banking business.

“An M&A might take away some of the focus on digital banking, which I’m not sure is ideal, given the rise of financial technology.

“I won’t dismiss it, but we are focused on digital banking and executing our organic growth strategy,” Fuda said.

On rumours of a merger between HLB and Alliance Financial Group Bhd (AFG), Fuda said the bank has no plan for such a deal.

“As we have said previously, it is not true. We weren’t in discussion with anybody,” he said.

HLB and AFG have both separately refuted a July report by UOB Kay Hian Securities (M) Sdn Bhd on a possible merger between the two.

Talk of consolidation within the domestic banking sector has been fuelled by the recently aborted merger between RHB Bank Bhd and AMMB Holdings Bhd, as well as the proposed merger between Malaysia Building Society Bhd and Asian Finance Bank Bhd.

For the financial year ended June 30, 2017 (FY17), HLB’s gross loans and financing grew 3.8% year-on-year (YoY) to RM125.1 billion, falling short of its target of 4% to 5% loan growth for the year.

This was largely due to lower transport vehicle loans as a result of softer industry growth in FY17.

Unscheduled corporate repayments had also offset the growth in the retail mortgages and loans to small and medium enterprises (SMEs) segments.

Yet, the lender has set a target of 5% to 6% loan growth for FY18 as it expects loan growth momentum to pick up given the sunnier economic outlook in the coming year.

“We expect loan growth to be driven by our SME loans portfolio, where we’re putting resources into branches nationwide where we see opportunity for businesses to grow.

“We also expect our transport vehicle loans segment to plateau — it fell 4.7% YoY in FY17 due to cautious consumer sentiment, but we foresee it to start stabilising,” Fuda said.

He said the group is also looking at potential tie-ups with foreign mobile payment platforms, similar to CIMB Group Holdings Bhd and Public Bank Bhd’s collaborations with China-based Ant Financial Services Group, the parent of Alipay.

HLB’s net profit for the fourth-quarter ended June 30, 2017 (4Q17) dropped 13.5% to RM482.92 million from RM558.54 million a year ago.

The lower figure was attributed to higher operating expenses; higher allowance for impairment losses on loans; advances and financing of RM115 million; lower write back of impairment losses on financial investments; and lower share of profit from joint venture.

The decline was partially offset by higher revenue of RM73 million and higher share of profit from Bank of Chengdu Co Ltd and Sichuan Jincheng Consumer Finance Ltd Liability Co of RM20.3 million.

The bank’s 4Q17 revenue grew 6.8% to RM1.15 billion versus RM1.08 billion registered in the previous year.

HLB has also proposed a final single-tier dividend of 30 sen per share for FY17.

For the full FY17, its earnings expanded 12.7% YoY to RM2.145 billion from RM1.9 billion previously, on higher net income, lower operating expenses and higher share of profit from associated companies.

Revenue rose 8.9% to RM4.55 billion from RM4.18 billion in FY16 on the back of prudent loan pricing and funding cost management, coupled with healthy non-interest income growth.

Net interest income grew 11.6% YoY to RM864 million in 4Q17, leading to 9.1% YoY growth to RM3.36 billion for FY17.

For the full year, net interest margin rose to 2.09% from 1.94% previously.

HLB’s parent, Hong Leong Financial Group Bhd (HLFG), also saw a drop in earnings for 4Q17.

Its net profit fell 34.2% to RM258.79 million compared to RM393.5 million recorded the year prior, attributed to lower contribution from the commercial banking division, while revenue climbed 5.5% to RM1.27 billion from RM1.21 billion last year.

For FY17, HLFG’s earnings widened 10.9% to RM1.51 billion, from RM1.36 billion a year ago, on higher contribution across all operating divisions, while revenue jumped 10.8% to RM5.03 billion versus RM4.54 billion the year earlier.