HLFin – Lim and Tan

DBS‘ 17-cent drop yesterday to $13.36, and HONG LEONG FINANCE‘s 10-cent gain in 2 days to $2.40 is interesting.



Media on both sides of the Causeway reported that a quid pro quo arrangement is being looked into by the 2 governments.



The general view is that DBS will at last be able to “enter” Malaysia, either on its own or via an acquisition (reason for the price drop?).



Malaysian banks will also be able to upgrade their limited licence in Singapore. (Malayan Bank is the only Malaysian bank with a qualifying full bank licence – allowed 25 service locations.)



Another possible candidate for some consideration, we like to believe, is HLF under Kwek Leng Beng‘s chairmanship. A merger with Hong Leong Bank Sdn Bhd, controlled by his cousin brother Tan Sri Quek Leng Chan would make eminent sense.



HLF has severely lagged the banks (see attachment below), which we would attribute to its unsteady dividend policy. It will get a significant boost.



We are upgrading HLF to a BUY, largely because of its underperformance. A maintained dividend at 2010’s 12 cents would give a yield of 5%.

 

DBS

OCBC

UOB

HLF

Current ($)

13.53

8.56

17.4

2.35

2010 High ($)

15.5

10.3

20.8

3.2

2011 Low ($)

10.9

7.7

14.8

2.07

% Decline (%)

29.7

25.2

28.8

35.3

Current Rebound (%)

24.1

11.2

17.6

13.5

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