Thursday, August 21, 2008

Hong Leong Finance: Time to buy?

I have been observing this stock for the past few months. It has low trading volume and erratic share price movements. It sometimes moves to above $3.50 or at times it will just lie at $3.40. Today it fell as low to $3.22. As I subscribe to income investing, I find Hong Leong Finance suiting very well to my risk appetite.

I picked up 3 lots today @ $3.40 using CPF OA.

I picked up another 3 lots @ $3.28 using cash.

The dividends for the past 4 years are as follows:

2004: 18 cents

2005: 33 cents

2006: 27 cents

2007: 26 cents

Average: 26 cents per annum

Trailing PE ratio is @ 11.2 at the price of $3.40.

I am projecting a modest 20 cents dividend for FY 08 which translates to roughly 6.1% yield (cash) and 5.9% yield (CPF).

HL Finance does not hold any CDOs or have no vested interest in Fannie Mae or Freddie Mac.

One thing to note is that it has only single digits ROE around the region of 8% on average. However, it has higher dividend yield than DBS, UOB and DBS.

Tomorrow is the last day to buy the stock to be entitled 5 cents dividends. It goes XD on Monday. I will pick up more if it falls further tomorrow.


la papillion said...

Hi sgbluechips,

Hong leong? Hmm, PE of around 12 seems about right for banks. That's around the industry level. Dividends seem pretty erratic to me, which I do not like, though 6.1% yield is pretty attractive (that being a conservative figure too).

ROE of 8% is something worth noting. I expect banks to have rather higher ROE because of their higher leverage. It should be around 12-15% instead of just 8%. To me, it's a sign that the management did not do a good job at allocating capital.

Just my thoughts.

Sgbluechip said...

Hi LP, thanks for your comments. Actually one of my resons buying HL is also because it has low trading volume.

This is a double edge sword as during a bear market, possibly less of its stocks will be sold down at fire sale prices. Though it just takes an investor to sell at $3 and it can stay there at last done price for a few hours or even days.

Nonetheless, there is a potential that HL can give me a yield of 8% if it pays out 26 cents dividends this FY year.

On the ROE matter, that is a valid point you made. Will take it into consideration next time I assess financial companies.


la papillion said...

Hi sgbluechip,

Nah, I'm not worried about liquidity issues. To me, if it's a good company at fantastic price, I'll rather it remain illiquid till I bought all in :)

Hope you'll get your 8% :)

la papillion said...


Not bad, HL results are out :)

Total dividend for the year is 24 sen :)

Actually the returns on average shareholders fund is around 15%, which is what I'll expect. How did you calculate the ROE to be 8%? Such a big difference.

Sgbluechip said...

Hi LP, HL finance just reported its 1H report on Aug 12. There is only an interim dividend of 5 cents per share.

Where did you get the results?

The ROE is quoted based on its 4 year average from 2004-2007 from Share Investments.

la papillion said...


I looked at

It's hong leong bank berhad, got difference? hoho, i think i made a mistake! :)