• We maintain our BUY call on Hong Leong Financial Group (HLFG) with an unchanged FV of RM21.60/share based on sum-of-parts valuation.

• HLFG’s 65.0%-owned subsidiary Hong Leong MSIG Takaful (HLMT) announced that it will exit the general takaful business. This enables it to focus solely on family takaful business from 1 July 2018.

• The streamlining of operations is positive in our view as it will enable the group to focus on family takaful which is in line with its 70%-owned key insurance entity, Hong Leong Assurance’s strength. Recall, HLA is focusing strongly on growing nonparticipating and investment-linked life policies.

• With the exit of general takaful business, HLMT will cease to be a composite licensed takaful operator effective 1 July 2018. This change would not necessitate the separation of the operations of general and family takaful into two licences to be held by two separate entities under the Islamic Financial Services Act 2013. Arising from this, HLMT will not need to incur additional operating expenses from running two entities for the takaful business.

• We make no changes to our forecast and FV of HLFG which we have conservatively valued HLMT at 1.0x P/BV.

Source: AmInvest Research - 2 Jul 2018