Date
22 November 2017
Shares of Global International Credit, which went public in December, tumbled 13 percent Thursday. Photo: HKEJ
Shares of Global International Credit, which went public in December, tumbled 13 percent Thursday. Photo: HKEJ

Premium on HK microlenders may not last

The world’s major central banks have begun monetary easing — an attempt to bolster economic growth by printing more money.

But despite abundant liquidity, banks continue to impose various restrictions on lending and to require a lengthy approval process for loans.

Small lenders face a low entry threshold, the Money Lenders Ordinance.

Their licensing is regulated jointly by the Registrar of Companies and the commissioner of police.

These money lenders are allowed to provide mortgages for home purchasers and offer credit to those who have urgent financial needs.

The number of small money lenders has swelled in recent years.

There were 779 licensed money lenders in Hong Kong in 2009, and the number increased to 1,120 in 2013 and 1,309 last year.

The sector posted a compound annual growth rate of 10.9 percent over the period.

Standard Chartered (02888.HK) exited from non-core businesses including consumer finance late last year.

The bank sold PrimeCredit Ltd. and Shenzhen PrimeCredit Ltd. to a consortium led by China Travel Financial Holdings Co.

Market rumors suggest the transaction was worth between US$600 million (HK$4.68 billion) and US$700 million.

The consortium intends to sell about HK$5.9 billion of mortgage loans to Bank of East Asia Ltd. (00023.HK) for HK$6 billion.

Standard Chartered acquired the business for HK$980 million in 2004.

The unit generated an after-tax profit of HK$520 million in 2011, HK$480 million in 2012 and HK$517 million in 2013.

And the interim profit for last year’s first six months rose by about 10 percent to HK$276 million.

Meanwhile, Global International Credit Ltd. (01669.HK), a licensed local money lender, went public in Hong Kong in December.

The firm offers mortgage financing for property in Hong Kong to companies and individuals as well as consumer finance.

There are three other listed money lenders in Hong Kong: First Credit Ltd. (08215.HK), with a price-earnings ratio of 3.3 times; Hong Kong Finance Group Ltd. (01273.HK), with a P/E of 7.2 times; and Oi Wah Pawnshop Credit Ltd. (01319.HK), with a P/E of 15.2 times.

Prime Credit traded at a P/E of 10 to 20 times before its divestment by Standard Chartered.

Global International Credit’s prospectus said its net profit would reach no less than HK$30 million for 2014, equivalent to earnings per share of at least HK$0.75. That translates into a P/E ratio of 65 times, based on the recent peak in its share price of HK$4.88.

That is clearly far above the industry average.

The company’s stock tumbled 13 percent on Thursday and closed at HK$4, which still translates to a P/E ratio of 53.3 times.

The share price is unlikely to remain at such high levels.

This article appeared in the Hong Kong Economic Journal on Feb. 13.

Translation by Julie Zhu

– Contact us at [email protected]

JZ/JP/FL

Department of Investment Analysis at HKEJ

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