On the first trading day of the year of the Wuxu Dog in Hong Kong stocks, HSBC Holdings PLC (00005) released a summary of the annual results for 2017. the profit attributable to shareholders of the parent company increased 6.45 times year-on-year to US $9.683 billion, while the basic profit per share was US $0.48, up sharply from US $0.07 in 2016.

The financial report also showed that HSBC Holdings PLC's benchmark pre-tax profit in 2017 was $17.2 billion, an increase of 141% over the same period last year, partly reflecting favorable changes in major projects. Adjusted pre-tax profit was $21 billion, up 11% from a year earlier, as income growth and lower provisions for loan impairment and other credit risks more than offset higher operating expenses.

Net operating income during the period was $49.676 billion, an increase of 11.5% over the same period last year. The adjusted cost-effectiveness ratio decreased to 60.4% from 61% in 2016, and the growth rate of adjusted income was higher than that of adjusted costs.

Although the results look bright, they still fall short of market expectations. A combination of 10 institutions had expected Huihang's benchmark pre-tax profit to be between $17.388 billion and $18.526 billion last year, a year-on-year increase of 1.45-1.61 times, with a median of $18.027 billion, a year-on-year increase of 1.53 times.

After the announcement of the results, Huihang shares changed from rising to falling, closing today at 80.95 Hong Kong dollars, down 3.11%, the biggest one-day decline since February last year. Is the performance of currency control really that bad?

Unload the burden and be light.

Major projects such as a sharp decline in the goodwill of Europe's global private banking business, fair-value losses on its own credit spreads and the sale of its Brazilian operations were the "main culprits" that led to a sharp drop in profits in 2016, Zhitong Financial APP has learned.

In July 2016, currency Control completed the sale of its HSBC Brazil business, together with exchange losses, resulting in an accounting loss of $1.7 billion. In addition, the European operations of global private banks recorded a goodwill write-off of $3.2 billion in 2016. By 2017, foreign exchange controls, which have shrugged off these burdens, have improved significantly in terms of pre-tax profits, income and operating expenses.

Du Jiaqi, chairman of the group, said, "the 2017 performance shows the strength and potential of the group. The significant increase in pre-tax profit on the accounting basis reflects the soundness of the Group's business and the non-recurrence of major projects in 2016. "

In addition, currency Control disclosed in its report that it had exceeded its risk-weighted asset reduction target, reducing a total of $338 billion in risk-weighted assets from various businesses since the beginning of 2015. At the end of 2017, currency controls' risk-weighted assets were $871.337 billion, up slightly from the end of 2016.

The three global businesses are performing well.

In terms of specific business, the adjusted profits of each global business increased across the board in 2017, and the adjusted income of the three major global businesses all increased.

Among them, the biggest profit contribution is industrial and commercial finance, and the global fund management business is particularly outstanding. According to Huihang, at present, the global fund management business has become an important contributor to the group's performance.

According to the performance summary, ICBC's adjusted pre-tax profit was 6.78 billion US dollars, an increase of 14.83% over the same period last year, accounting for 32.3% of the overall pre-tax profit. In addition, revenue from global trade and finance business stabilized after the difficulties of 2016 and expanded its share in key markets in 2017, including Hong Kong's trade finance market and the UK's accounts receivable financing market.

In addition, driven by rising interest rates, retail banking and wealth management increased adjusted pre-tax profits by 23.72% to $6.478 billion, the fastest-growing business of all businesses.

Thanks to the strong performance of industrial and commercial finance and retail banking and wealth management, currency control's provision for adjusted loan impairment and other credit risks was reduced by $800m to $1.8 billion, the lowest in nearly six years.

The Asian market continues to grow

In four of the five major operating areas, adjusted pre-tax profits and revenue increased, and Asia, as the strategic focus of the group, continued to be the largest contributor to profits. it brings more than 75% of the accounting benchmark and adjusted profits to the group.

According to Zhitong Financial APP, Huihang's pre-tax profit in the Asian region reached $15.329 billion in 2017, accounting for 89.3% of the group's overall pre-tax profit.

Gu Zhihua, chief executive of currency control, said today that the group would further shift its business focus to Asia, continue to expand its business in mainland China, launch a number of retail banking products and increase its loan size in the Pearl River Delta region. At present, the group has 24 Chinese business groups, of which 20 are located in countries along the "Belt and Road Initiative" route.

It is worth mentioning that Huanghuang's performance in North America has improved by leaps and bounds, with the region's accounting benchmark pre-tax profit soaring 7.6 times to $1.601 billion. Mr Gulliver pointed out that the reduction of the existing consumer and mortgage portfolio in the US had been completed and that continued improvement in the US business could bring valuable synergies to other regions.

In addition, currency controls turned losses into profits in Latin America, while losses in Europe narrowed to $1.864 billion from $6.774 billion in 2016.

Buybacks and dividends are still to be expected.

In the past few years, due to the continuous decline in performance, currency control has to rely on dividends and buybacks to retain the hearts of investors and achieve the goal of stabilizing the share price. Judging from the stock price trend, despite being a "stupid elephant" with a trillion-level market capitalization, the share price of Foreign Exchange Control has risen steadily over the past two years and outperformed the market, which has something to do with its large dividends and buybacks.

Since the first buyback in August 2016, the total amount of share buybacks announced by currency Control has reached 5.5 billion US dollars. From 2011 to the end of 2017, the group paid a cumulative dividend of $64.7 billion, together with share buybacks, resulting in a total shareholder return of 70.3 per cent. The "big gift package" with buybacks and dividends attached to the performance report has become the habitual expectation of investors for currency control.

However, the company did not announce a new round of buybacks in its 2017 performance summary, referring only to "share buybacks where appropriate, depending on the progress of targeted capital measures and regulatory approvals." This is also one of the reasons why Huihang's share price fell sharply today.

Gu Zhihua, the chief executive, explained in a conference call that due to technical and regulatory reasons, the group did not announce its share repurchase plan in detail, but it did not mean that the repurchase policy had changed.

He added that because the group planned to issue additional tier one capital securities (AT1) in the first half of this year, regulators would not allow the group to issue AT1 and share buybacks at the same time, so it would have to wait for the issue to be completed.

In terms of dividends, currency Control announced a fourth dividend of $0.21, maintaining the dividend level of $0.51 per common share for the whole year, with a total shareholder return of 24% in 2017.

It is worth noting that HSBC Holdings PLC's primary equity ratio reached 14.5% in 2017, up 0.9 percentage points from 2016, and continued to maintain the highest level in the industry. With relatively abundant capital, it is still quite possible for currency control to continue to buy back and increase dividends in the future.

Bank of America Merrill Lynch expects to announce a new round of buybacks when it finishes issuing tier one capital bonds, maintaining its forecast of $2 billion this year. Morgan Stanley estimates that Huihang will invest $5 billion a year to buy back shares in the next two years.

Value Yaohui, director of Yaocai Securities Research Department, said that the biggest selling point of Foreign Exchange Control is that it can continue to buy back shares and pay dividends progressively in the future with abundant capital. In addition, the outside world has great hopes for Chairman du Jiaqi. Recently, there has been news that the group may acquire asset management or insurance business and expand its business through acquisition. Coupled with the fact that the current interest rate is still close to 5%, which is suitable for investors who pursue soundness, the current price is still worth absorbing and held in the medium and long term.

Currency controls will also benefit from widening banking spreads as the world enters an interest rate hike cycle. Deutsche Bank previously said that the US has raised interest rates by 100 pips, benefiting from the annualization of currency control by about $2.1 billion. It expects four interest rate increases in the US and one in the UK this year. Deutsche Bank also believes that the current price of currency control is 14.4 times forecast earnings in 2018, which is more expensive than that of European banks, but cheaper than Hang Seng Bank (00011) and East Asia (00023).

It is important to note, however, that net interest income has fallen for six consecutive years, falling 5.5 per cent year-on-year to $28.176 billion in 2017, compared with $40.662 billion in 2011, and it is unclear when this main source of income will pick up.

(photo: Zhitong Financial APP)