The scale continues to grow, and the asset quality is steady
Net profit, total operating income, PPOP +24.8% (restated), +20.8% (restated), and +31.2% (restated) compared to -8.1 pct, -0.8 pct, and +3.0 pct in the first half of '23. The year-end dividend payout ratio was 54%, +1.0pct year over year. The dividend per share was HK$1.67, corresponding to a dividend rate of 7.97% (2024/3/28). In view of the steady expansion in scale, we forecast the 2024-26 BOC Hong Kong BVPS forecast values of HK$33.75, 37.76, and HK$42.20, respectively, with corresponding PB of 0.62, 0.55, and 0.50 times, respectively. Comparatively, the 2024 Wind unanimously predicted an average PB of 0.61 times (2024/3/28). In view of the marginal restoration of the company's revenue growth rate, it should enjoy a certain valuation premium. We gave the 2024 target PB 0.85 times, and the target price was HK$28.69, maintaining a “buy” rating.
Continued growth in scale and upward in asset pricing
Total assets, loans, and deposits at the end of 23 were +5.5%, +3.3%, and +5.2% year-on-year, compared with +1.4pct, +0.1pct, and +14.5pct at the end of 23H1. Corporate loans and personal loans were +0.4% and +9.0% year-on-year respectively at the end of '23.
Loans/total assets increased 0.2pct to 43.8% from the end of 23H1. The adjusted net interest spread increased by 7 bps to 1.63% compared to 23H1, seizing the opportunity of rising market interest rates, proactively managing assets and liabilities, and continuing to improve the return on assets. The yield on 23-year interest-bearing assets and loan yields were 3.85% and 4.65%, respectively, compared with +27 bps and +34 bps in the first half of the year. The 23-year interest-bearing debt cost ratio and deposit cost ratio were 2.73% and 2.78%, compared with +20 bps and +17 bps in the first half of the year. The increase in deposit costs was mainly affected by the regularization of deposits. At the end of '23, cash accounts (CASA) accounted for 0.2 pct compared to the end of June.
Marginal recovery in revenue, declining cost-to-revenue ratio
Non-interest revenue in '23 was -6.8% YoY, up 17.2pct from 23H1, accounting for 22.0% of revenue.
Net service fee and commission revenue were -6.5% year-on-year, up 3 pcts from 23H1. The marginal recovery in revenue growth was mainly due to currency trading revenue and credit card business +89.5% and +22.0% year-on-year, respectively, while securities brokerage and fund distribution revenue were -26.7% and -20.3%, respectively, with a significant decline. Net transactional revenue in '23 was -35.2% year-on-year, mainly due to the Group's optimization of the bank investment structure and corresponding reduction in market price fluctuations of several interest rate instrument combinations, and reduced returns from interest rate instruments and fair value hedging projects. The cost-revenue ratio in '23 was -5.99pct year-on-year to 25.4%, and cost control capabilities improved.
Asset quality is stable, and credit costs have risen slightly
In 2023, ROE and ROA were +1.14pct and +0.12pct to 10.60% and 0.90%, respectively. At the end of 23, the specific classification or impairment loan ratio (non-performing rate) was +0.32pct to 1.05% at the end of 23H1, and is still at a low level in the market. The credit card loan delinquency rate and personal housing loan delinquency rate at the end of 23 were +0.05pct and +0.01pct at the end of 23H1, respectively. Customer credit costs increased 0.23pct to 0.38% year-on-year in '23. The total capital ratio and common equity Tier 1 capital ratio were -1.81 pct and +0.02pct at the end of 23H1 to 21.18% and 19.02%, respectively.
Risk warning: Economic recovery fell short of expectations, and the deterioration in asset quality exceeded expectations.