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An Investor’s Quick Guide To Hong Leong Finance Ltd, A Stock Near A 52-Week Low

Hong Leong Finance Ltd (SGX: S41) is a company with a stock price that’s currently near a 52-week low.

This prompted me to dig deeper into the company. And, here are some of the important things I found.

Core business

Hong Leong Finance, as its name suggests, provides financial services. It has a suite of personal deposit and savings products; corporate and consumer loans; corporate finance ad advisory services, and more.

In other words, Hong Leong Finance’s business model is one that closely resembles Singapore’s domestic banks such as DBS Group Holdings Ltd (SGX: D05).

Loan profile

The lion’s share of Hong Leong Finance’s income (income for a financial services company is analogous to revenue) comes from the company borrowing money from depositors and lending the money out. In 2015, 93% of Hong Leong Finance’s total income came from net interest income.

As such, to understand the company, it’s vital that we understand its loan portfolio. The chart below shows the type of loans Hong Leong Finance had in its portfolio in 2015 and 2014:

hong-leong-finance-customer-loans-by-product-group
Source: Hong Leong Finance 2015 annual report

The next chart shows the company’s customer loans classified by industry:

hong-leong-finance-customer-loans-by-industrial-classificaiton
Source: Hong Leong Finance 2015 annual report

From the two charts above, one thing is clear about the company’s loan portfolio: The majority of its loans are exposed to the property sector (up to 82% in 2015). As such, the health of the property sector in Singapore could have a significant impact on the company’s profitability.

Continuous profitability over the last 10 years

A long, solid history of profitability is a good clue – though not necessarily a promise – on a company’s future profitability.

In Hong Leong Finance’s case, it has managed to remain profitable over the last 10 years. This includes the period of the great recession from 2008 to 2009.

Dividend history

Just like a company’s track record of generating profits, a company’s dividend history is also a good clue – though not a guarantee – on how its dividends in the future could look like.

Hong Leong Finance has managed to consistently pay an annual dividend since at least 2005. That being said, the company’s dividend payouts were much higher in the years prior to the great recession of 2008/09 due to various special dividends seen in 2005 to 2007.

To the point, Hong Leong Finance’s annual dividend per share (including special dividends) from 2005 to 2007 had averaged S$0.307; from 2013 to 2015, the company’s dividend averaged at ‘just’ S$0.11 per share.

In any case, at the company’s current share price of S$2.17, it has a yield of 5.1% thanks to its 2015 dividend of S$0.11 per share. That’s higher than the market’s yield of 3%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.