Hong Leong Bank to reduce Bank of Chengdu stake?
Recent media reports have suggested that Hong Leong Bank Bhd (HLBB) may be intending to divest up to a 5% stake in its Associate company, Bank of Chengdu (BoCD). HLBB currently holds a 17.8% in the Chinese lender.
HLBB is the second largest shareholder in BoCD behind Chengdu Jiaozi Financial Holding Group Co Ltd, which is a state-owned company and the controlling shareholder of BoCD.
For FY2025, HLBB’s equity accounted earnings for Associate companies amounted to RM1.47 billion, the bulk of which came from BoCD. Earnings has grown to the extent that it is almost at a similar level to its Business & Corporate Banking operations.
Accounting for around 26% of HLBB’s Profit Before Tax, BoCD’s earnings contribution is up from 21% five years before. BoCD has recorded strong growth since 2021, expanding its commercial and SME customer base within the local business community and benefiting from supportive policies from central and provincial governments (Source: HLBB Annual Report 2025 Page 53, Annual Report 2024 Page 21).
BoCD’s substantial earnings contribution has become a problem for HLBB, one many would agree is a nice problem to have.
In 2024, BoCD’s reported Net Profit was RMB12.9 billion, up from RMB11.7 billion in 2023. BoCD’s share price closed at RMB16.12 at the end of December 2025 giving it a market cap of RMB68 billion. It reached a peak of RMB20.96 at the end of June 2025 before hitting reverse gear.
During the financial quarter ending 31 March 25, HLBB had to book a one-off loss of RM408 million, of which RM393 million was due to the dilution of its stake in BoCD. This was a non-cash item resulting from the conversion of BoCD’s into ordinary shares, thereby increasing BoCD’s total share capital from 3,814 million to 4,238 million shares. HLBB holds 753.5 million shares with a market value of RMB12.1 billion as at 31/12/25 or around RM7.1 billion. According to HLBB’s 2025 Annual Report, the carrying book value of its Associate investments is as below.
Although the carrying book value of its BoCD investment is not shown here, Note 14 of the Financial Statements mentions that the market value of its investment in BoCD was below the carrying amount as at 30 June 2025. HLBB has chosen not to book any impairment loss as it reasons that the recoverable amount was higher than the carrying value when determined under a value-in-use (“VIU”) calculation using a discounted cash flow model.
According to the bank, the plan to partially divest is at an early stage and it has not identified any buyers for this. The bank said reasonable pricing for the deal would be between 0.9 times and 0.95 times of the book value of BoCD at end-September 2025.
As at 30/6/2025, BoCD’s Shareholders Equity stood at RMB88.5 billion, implying that HLBB may be looking at a break-even scenario for its divestment.
Should HLBB pare down a 5% stake in BoCD successfully, it may unlock RM2.5 billion+ of liquidity that can be used to further its growth in core businesses in Malaysia, Singapore and Vietnam, as well as paid out as a special dividend.
So will there be a Special Dividend?
While HLBB’s dividend payout is still below peer average, it has increased significantly to 96 sen (or 46% of EPS) for FY2025. In its response to shareholder questions in its AGM on 27/10/25, HLBB stated it is progressively working on moving the payout to market average to reward shareholders. Indeed HLBB has a solid track record in rewarding shareholders with its increasing stream of dividends and share price growth over the last 10 years. Furthermore the implementation of Basel III regulatory adjustments could raise the bank’s Common Equity Tier 1 (CET1) ratio by around 50 basis point in FY26. A special dividend and/or increased payout ratio is realistic and investors have little reason to bet against this if a deal should materialise.