Hong Leong Finance

Hong Leong Finance: UOB Kay Hian downgrades to Hold with $2.67 TP. Note that changes in the finance services industry with the advent of floating-rate housing loans and a low interest rate environment have resulted in lower margins. Cooling measures for private residential properties and curbs on car loans create further obstacles for HLF. Surplus capital has been utilized to support loan growth but ROE remains low due to margin compression. House however highlight that HLF remains a potential takeover target given its network of 28 branches but below-average ROE of 4.6% for 2013. Acquisition would make sense for foreign banks seeking entry into SG. However, approval from MAS would probably depend on whether there is reciprocal arrangement to help SG banks simultaneously enter the acquirer’s domestic market.