KUALA LUMPUR (March 25): AmInvestment Bank Bhd maintained its “buy” call on Hong Leong Financial Group Bhd (HLFG) at RM19.76, with fair value unchanged at RM22.40.

In a note published Friday, March 25, the research house said it expects HLFG’s main subsidiary, Hong Leong Bank Bhd (HLB), in May 2022 to post decent earnings for the third quarter ending March 31, 2022 (3QFY22).

“This will be supported by stronger loan growth with an acceleration in commercial/SME (small and medium-sized enterprises) working capital lending, stable net interest margins and strong earnings from associate Bank of Chengdu.

“The quality of the banking subsidiary’s assets should remain stable, with the cost of credit in 3QFY22 remaining low.

“As of end-February 2022, HLB’s lending under the Payment Relief Relief Schemes continued to decline to RM10 billion from RM26.4 billion as of January 31, 2022. This represented 6% of its total lending base,” the research house said.

Meanwhile, for the insurance division, AmInvestment expects life insurance sales to improve in the second half of the fiscal year (2HFY22), supported by stronger consumer sentiment following the reopening economy and international borders.

He said the Covid-19 pandemic is also likely to sensitize individuals to take out life insurance policies and purchase protection cover sooner than they otherwise would have.

“Hong Leong Assurance Bhd (HLA) should benefit modestly from any increase in interest rates. Any changes in interest rates will have a slightly positive effect on HLA’s earnings, as the release of contractual obligations will offset losses resulting from changes in the fair value of the securities.

“We understand that the average duration of HLA’s bond portfolio is only six to seven years, less than the duration of life insurance liabilities.

“Therefore, it will mitigate the risk of fair value losses from the key insurance entity on investments with rising interest rates,” he said.

The research firm added that the consolidated Common Equity Tier 1 (CET1), Tier 1 ratio and total capital of HLFG remained healthy at 11.36%, 12.29% and 15.15% respectively at the end of 1HFY22.

As of this writing on Friday, shares of HLFG were trading unchanged at RM19.76, giving it a market capitalization of RM22.67 billion.