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New Straits Times
2 days ago
- Business
- New Straits Times
Hong Leong poised to benefit from China associate's share price rally
KUALA LUMPUR: Hong Leong Bank Bhd is set to attract renewed investor interest following the strong performance of its China associate, Bank of Chengdu Co Ltd, whose share price recently surged to a record high despite geopolitical challenges. In a research note, CIMB Securities said Bank of Chengdu's stock hit RMB19.57, up 21.7 per cent from its February low, as market sentiment improved after the finalisation of United States tariffs on China. Hong Leong Bank holds a 17.8 per cent stake in Bank of Chengdu, which remains a key contributor to its earnings. "The risk-reward trade-off for Hong Leong is now tilted to the upside," CIMB Securities said, upgrading its rating on the stock to "buy" from "hold" and raising the target price to RM21.50 from RM21.40. The firm noted that Bank of Chengdu's improving outlook and consensus expectations for a 4.2 per cent year-on-year rise in pre-tax profit for financial year 2026 (FY26) contrast with its earlier conservative estimate of a 5.8 per cent decline. Aligning projections with market consensus could imply a potential target price of RM24.10 for Hong Leong, it said. Despite Bank of Chengdu's positive momentum, Hong Leong's own market capitalisation declined 9.3 per cent to RM42.1 billion since February, partly due to a one-off dilution loss of RM408 million. Of this, RM393 million was linked to the conversion of Bank of Chengdu's convertible bonds. "Hong Leong confirmed that this is a one-off loss," CIMB Securities said, adding that the dilution was caused by Bank of Chengdu's bondholders converting at a lower price, compared with Hong Leong's earlier and more favourable conversion. Bank of Chengdu's contribution to Hong Leong's group pre-tax profit stood at 25.7 per cent in the March quarter, maintaining its critical role in Hong Leong's earnings base. The Chengdu-based lender reported a robust return on equity of 14.8 per cent, with loans and deposits rising 17 per cent and 15 per cent year-on-year, respectively. Asset quality at Bank of Chengdu also remained solid, with a gross impaired loans ratio of just 0.66 per cent and loan loss coverage at 456 per cent. CIMB Securities noted that only six to seven per cent of Bank of Chengdu's loans are linked to the manufacturing sector and are largely domestically focused, making the impact of US tariffs manageable. Meanwhile, Hong Leong's asset quality continued to outperform industry standards. Its gross impaired loans ratio stood at 0.57 per cent as at March, lower than the banking industry's 1.42 per cent. Hong Leong's loan loss coverage dropped to 95 per cent in the third quarter of 2025 from 139 per cent in the previous quarter due to a RM399 million write-back of pre-emptive provisioning. Despite this, the firm said it remains "not overly concerned" as about half of the impaired loans are backed by strong property collateral and the remainder is covered by provisioning at 1.8 times. "Looking ahead, we expect Hong Leong to rebuild its loan loss cover in the coming quarters, consistent with its traditionally conservative credit culture," it said. CIMB Securities also raised its dividend payout forecasts for Hong Leong, projecting yields of 4.5 per cent for FY26 and 5.1 per cent for FY27, driven by improved capital ratios under Basel III. The dividend per share is expected to rise to 88 sen in FY26 and 99 sen in FY27, from 71 sen previously. Key catalysts for Hong Leong include its stable asset quality and higher dividend payouts, while downside risks include potential spikes in credit costs and elevated funding costs. Shares of Hong Leong last traded at RM19.40 apiece, valuing the lender at RM42.05 billion.
New Straits Times
29-05-2025
- Business
- New Straits Times
OCR posts lower net profit, revenue in Q1
KUALA LUMPUR: OCR Group Bhd recorded a lower net profit of RM408,000 for the first quarter ended March 31 2025 compared to RM1.02 million net profit a year ago. Its revenue stood at RM32.78 million against RM33.97 million previously, amid a normalising cost environment following the completion of key developments. OCR said the softer performance was anticipated, given the reduced contribution from completed projects. Its revenue for the quarter was primarily derived from progress in ongoing residential developments such as The Mate @ Damansara Jaya, Stellar Damansara, and Kyra Collection (Kyra) - Residensi Akasia. The projects continue to underpin OCR's earnings visibility while new phases are being prepared for launch, it added. On a quarter-on-quarter basis, revenue rose significantly from RM4.0 million in Q4 FY2024, reflecting the completion and billing of Isola KLCC in the current quarter. However, its pre-tax profit normalised to RM0.37 million from RM3.80 million in the immediate preceding quarter, which had included one-off gains from the revaluation of investment properties. Group managing director Billy Ong Kah Hoe said while margins moderated during the quarter following the completion of key projects, OCR's topline recovery demonstrated the strength of its development portfolio. "We continue to focus on prudent cost management, timely project execution, and tapping into strategic government-backed initiatives to expand our affordable housing offerings." He added that with a healthy pipeline of projects, OCR continues to be well-positioned to tap into growing demand in both the affordable and mid-market segments. The company is preparing to launch D'Templer Hilltop Residences in Rawang, a RM344 million GDV project targeted for Q2 2025. The project aligns with OCR's strategy to deliver lifestyle-oriented urban housing with broad market appeal, it said. OCR will continue to focus on market-driven developments that meet evolving homebuyer preferences. "With supportive policies under 2025 Budget, including the RM10 billion Housing Credit Guarantee Scheme, and a projected national GDP growth of 4.5-5.5 per cent, the group anticipates stable property demand in key growth corridors, it said.
New Straits Times
01-05-2025
- Business
- New Straits Times
Bursa maintains FY25 targets, despite market headwinds
KUALA LUMPUR: Bursa Malaysia Bhd has reaffirmed its financial year 2025 (FY25) key performance indicators (KPIs), maintaining its pre-tax profit target of RM369 million to RM408 million and aiming for 60 new listings with a combined market capitalisation of RM40.2 billion, despite facing ongoing market headwinds. CIMB Securities reported that Bursa's management shared these updates during a recent analyst briefing. However, the research house noted that a review of these KPIs could take place, with any revisions likely to be announced in the second quarter of 2025 (2Q25). Adopting a more cautious approach, Bursa has also confirmed plans to reduce its annual capital expenditure (capex) from the earlier range of RM50 million–RM60 million, as it prioritises key investments and considers deferring non-critical initiatives amid an increasingly challenging external environment. CIMB said the regulator is actively managing operating expenses to offset softer revenue performance, with particular focus on marketing, professional fees, development spending, and variable staff costs. In the first quarter of 2025 (1Q25), Bursa's operating expenses rose 6.7 per cent year-on-year (YoY) but fell 7.2 per cent quarter-on-quarter (QoQ), resulting in a cost-to-income (CTI) ratio of 50.4 per cent—higher than 46.5 per cent in 1Q24 but lower than 53.8 per cent in 4Q24. Bursa aims to bring its CTI ratio back below 50 per cent through continued cost containment efforts. Following adjustments to its forecasts, CIMB now expects Bursa's FY25 earnings per share (EPS) to decline by 14.5 per cent YoY, with modest growth of 0.5 per cent and 0.8 per cent YoY anticipated in FY26 and FY27, respectively. CIMB reiterated a 'Hold' call on Bursa Malaysia, lowering its discounted cash flow (DCF)-based target price to RM7.40 (from RM8.15), reflecting a forecast FY25 price-to-earnings (P/E) multiple of 22.6 times. Bursa is currently trading at an FY25F P/E of 23.2 times, which is one standard deviation above its 10-year historical average of 18.1 times. "We view Bursa as fairly valued at its current price level, supported by a dividend yield of 4.1 per cent," CIMB said. For 1Q25, Bursa reported a 10 per cent YoY decline in net profit to RM67.5 million, down 2 per cent QoQ, missing analysts' expectations. The weaker earnings were mainly due to a 12.2 per cent YoY (5.5 per cent QoQ) decline in securities trading revenue, as the securities average daily value (ADV) dropped 11.9 per cent YoY and 5.3 per cent QoQ to RM2.8 billion. However, revenue from derivatives trading rose 13.7 per cent YoY (down 12.2 per cent QoQ) on the back of a 21.3 per cent YoY increase in average daily contracts (ADC) to 102,184. Other trading revenues, including contributions from Bursa Suq Al-Sila', Bursa Gold Dinar, and BR Capital, rose 24.5 per cent YoY (up 12.1 per cent QoQ). While the results slightly exceeded CIMB's earlier projections—helped by stronger-than-expected conference, exhibition, and other income—they still fell below expectations, as a weaker 2Q25 net profit is anticipated due to cautious market sentiment following US tariff announcements on April 2. No dividend was declared for 1Q25, in line with expectations, CIMB said. CIMB has also revised its ADV forecasts downward to RM2.7 billion for FY25 (from RM3.2 billion previously) and to RM2.8 billion and RM2.9 billion for FY26–FY27 (previously RM3.2 billion and RM3.3 billion). The revisions reflect expectations of continued weak trading activity amid global trade tensions and evolving US tariff policies, which are expected to weigh on global growth, prolong inflationary pressures, and increase market volatility. While Malaysia's domestic economy remains resilient, CIMB cautioned that global uncertainties could dampen investor and consumer confidence, capping Bursa's earnings upside potential. "As such, we project ADV to ease to RM2.4 billion in Q225. A rebound is anticipated in 2H25 as market uncertainty fades and greater clarity emerges post-negotiations during the 90-day pause," CIMB said. Hong Leong Bank Bhd (HLIB) maintains a HOLD call on Bursa but lowers its target price to RM7.70 (from RM8.83) following the earnings revision. "Although the share price has fallen recently, we still find Bursa's risk-reward profile to be balanced. Considering ADV moderation over the next two quarters, along with the absence of immediate positive catalysts, we envision limited price upside in the near term. Nevertheless, the stock offers a fairly decent dividend yield of 4 per cent," it said in a note. Looking ahead, HLIB expects ADV to remain subdued in the coming months (at lower RM2.2 billion till October 2025) as investors continue to embrace a cautious 'wait-and-see' posture amid prevailing market uncertainties.
