This article first appeared in The Edge Malaysia Weekly on November 13, 2023 - November 19, 2023

Hong Leong Financial Group Bhd’s (HLFG) astute handling of risk, cost and credit discipline during the pandemic years has helped it clinch, for the third consecutive year, The Edge Billion Ringgit Club award for the highest growth in profit after tax over three years in the financial services category for companies with a market capitalisation of RM10 billion and above.

The financial institution is controlled by low-key businessman Tan Sri Quek Leng Chan, who also has property and manufacturing businesses.

HLFG derives its earnings from three core businesses, namely commercial and Islamic banking under Hong Leong Bank Bhd, insurance and family takaful under HLA Holdings Sdn Bhd and investment banking and asset management under Hong Leong Capital Bhd. However, it is the banking business that makes up the bulk, or about 90%, of its bottomline.

For the three-year period under review, that is, between the financial year ended June 30, 2019 (FY2019) and FY2022, HLFG achieved a risk-weighted compound annual growth rate of 12.8% in profit after tax, the highest among its big-cap peers.

Its FY2020 net profit, which reflected the early months of the pandemic, contracted 3.2% to RM1.86 billion from RM1.92 billion in FY2019; however, in FY2021, it made a strong comeback as net profit grew 21.9% to RM2.27 billion. It then grew by a more moderate 8.3% to RM2.45 billion in FY2022.

Interestingly, HLFG went on to report a 13.8% growth in net profit to RM2.79 billion in FY2023, during which four out of the five 25-basis-point increases in the country’s overnight policy rate since the start of the pandemic had occurred.

Maybank Investment Bank Research said the group’s FY2023 net profit was above its expectations, coming in at 108% of its full-year forecast. “The better-than-expected performance was largely [owing to] better contributions from the insurance division during the financial year,” it said in an Aug 31 report.

HLFG’s cost-to-income ratio, a measure of efficiency, improved from 44.9% in FY2020 to 37.7% in FY2022, before moving up slightly to 40% in FY2023. Meanwhile, its gross impaired loan ratio, an indicator of asset quality, improved from 0.61% in FY2020 to 0.49% in FY2022, before deteriorating to 0.57% in FY2023. Nevertheless, HLFG continues to rank as one of the industry’s best in terms of those two financial metrics.

Its return on equity has grown from 9.3% in FY2020 to 10.4% in FY2022, before improving further to 10.9% in FY2023.

The group’s dividend per share, which fell to 38 sen in FY2020 — the first year of the pandemic — from 42 sen in FY2019, has since improved steadily to 40 sen in FY2021, 46 sen in FY2022 and 49 sen in FY2023.

It will be interesting to see if it can keep up its performance amid growing macroeconomic headwinds globally.

In its latest annual report, released on Oct 2, HLFG chairman Quek notes that although there are signs that the interest rate upcycle is nearing its peak, the prospect of a pause in rate hikes remains uncertain, given the recent rally in crude oil prices that may fuel further inflationary pressure.

“Malaysia’s trade-reliant economy, sensitive to these macroeconomic headwinds, is expected to moderate but remain on a positive trajectory, supported by resilient domestic demand,” he says.

Amid this scenario, Quek says the group’s business focus for FY2024 and onwards will be to unlock wealth management opportunities, boost its insurance distribution capabilities and strengthen its foreign fund management capabilities.

“We will also continue to employ cutting-edge technologies and digital solutions for better insight into our businesses, simplify operational processes and, most importantly, enhance the customer engagement experience,” Quek adds.

HLFG is led by president and CEO Tan Kong Khoon, who headed Hong Leong Bank from July 2013 to February 2016.

The group holds a 64% stake in Hong Leong Bank, 70% in Hong Leong Assurance Bhd and 81% in Hong Leong Capital Bhd.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.