[ET Net News Agency, 20 July 2018] Morgan Stanley expects core PPoP for Hang Seng Bank
(HSB)(00011)/ BOC Hong Kong (02388)(BOCHK) to rise by more than 20% YoY after a very
strong 2017.
The big driver for this strength will likely be net interest income. BOCHK had reported
in 1Q that its underlying NIM was up >5 bps QoQ, and Morgan expects another 5 bps QoQ rise
in 2Q (average NIM in 1H was up 7-8 bps HoH).
HSB is likely to be better with NIM expansion HoH at >12-13 bps. There will likely be an
even bigger pickup in 3Q, given HIBOR moves. The strong earnings growth for large HK banks
still has room to run.
Morgan said HSB is largely a domestic HK bank with relatively low non HK and non HKD
exposures. Hence, the revenue trends mentioned above will drive HSB earnings. The stock
has done well year-to-date - outperforming HK and Asian banks by about 10% each.
BOCHK has come under pressure in the recent market weakness and now trades at <10x 2019
EPS estimates. However, Morgan expects strong earnings progression given leverage to
HIBOR. While the NIM increase will likely be slower than at HSB, given aspirations in non
HKD business, the research house thinks overall NIM will likely increase by ~20-25 bps
between 2016-2018. This should drive strong earnings (>20% core PPoP growth) and hence,
strong stock performance.
Morgan rates both HSB and BOCHK "overweight", with respective target prices of HK$240
and HK$50. (KL)