The 2023 results are largely in line with our expectations
BOCHK announced its 2023 results. The annual revenue, profit before provision, and net profit to mother increased by 21%, 31%, and 26% year-on-year respectively, while 2H23 increased 20%, 34%, and 18%, respectively. The results are basically in line with our expectations and the market.
Development trends
Growth in scale continues to outperform the market. At the end of 2023, the company's total loans, customer loans, and customer deposits were 5.5%, 3.1%, and 5.3%, respectively, which were basically in line with our and market expectations. The company continued to maintain a faster loan growth rate than the Hong Kong banking industry. At the end of 2023, the company disclosed that the market share of deposits and loans was 15.2% and 16.2%, respectively, with year-on-year changes of -0.2ppt and 1.1ppt. The company still faces challenges in guiding loan growth in 2024, hoping to achieve positive loan growth and continue to outperform the market.
Regionalization strategies bring new opportunities for growth. Regionalization is one of BOCHK's key strategies. The company relies on the joint advantages of the parent bank, local branches in Hong Kong, China, and Southeast Asia to provide comprehensive financial services for key Belt and Road projects and Chinese enterprises going global. At the end of 2023, the company's Southeast Asian customer loans and deposits were HK$54 billion and HK$75.4 billion (accounting for 3.2% and 3.0%, respectively), up 4.6% and 9.5% year on year; revenue of HK$4.35 billion (accounting for 6.6%), up 39% year on year. All growth rates were faster than the company's overall level. In an environment where local credit demand in Hong Kong is poor, we will continue to focus on the growth opportunities brought about by the company's regionalization strategy in the future.
Net interest income performed well. In 2023, adjusted net interest income increased 29% year on year, and adjusted net interest spread was 1.63%, up 27 bps year over year, which is basically in line with our and market expectations. We believe that the company's positive net interest income performance in 2023 was due both to the widening net interest spread and to the 7.4% year-on-year increase in its average interest-bearing assets. The company's CASA deposits at the end of 2023 accounted for 47.4%, down 4.3ppt year on year. Among them, there was a slight month-on-month recovery in the 4Q23 quarter. We believe this performance is superior to that of peers. On the asset side, the company's performance conference indicated that in the future it will continue to increase the allocation of bond assets and extend the long-term period moderately. The company guides efforts to achieve a stable net interest spread and a steady increase in net interest income in 2024.
Fee revenue is still being held back by a high interest rate environment. In 2023, the company's non-interest adjusted revenue decreased 8% year over year, with handling fee revenue falling 7% year over year. Specifically, revenue from credit cards, escrow, and currency trading increased 22%, 9%, and 90% year-on-year in processing fees, while sales revenue from securities brokerage, insurance, and fund sales related to the capital market all fell by more than 20% year over year, and loan commission income also declined by 5%.
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Profit forecasting and valuation
The 2024E profit forecast remains largely unchanged, and the 2025E profit forecast of HK$37.929 billion was introduced. The current stock price corresponds to 0.7 times the 2024E net market ratio and 0.6 times the 2025E net market ratio. Maintaining an outperforming industry rating and keeping the target price of HK$25.80 unchanged, corresponding to 0.8 times the 2024E net market ratio and 0.8 times the 2025E net market ratio, with 23.2% upside compared to the current stock price.
risks
Interest rates fell more than expected, and risks associated with real estate exposure worsened.