1Q24 Calibration Performance Slightly Higher Than Our and Market Expectations
HSBC Holdings announced 1Q24 results: Under the adjusted caliber, revenue was US$17.20 billion, +2.6% year over year; profit before tax was US$8.968 billion, -4.3% YoY; profit before tax was US$8.968 billion, up from +3.2% and +10.9% compared with our market expectations. The adjusted performance was slightly higher than our and market expectations, mainly due to net interest income, non-interest income and provision calculation performance.
We estimate that the company recovered to 16.4% this quarter, close to the 1H23 level, and is near the upper limit of the company's 2024E ROTE 14-16% target. Additionally, the company announced a new round of $3 billion buybacks, which is higher than our estimate of $2 billion. We believe that HSBC is expected to continue to implement the logic of high ROTE and high shareholder returns. The current net market ratio of 0.9 times 2024E is still highly cost-effective.
Development trends
Net interest income performed better than market expectations. 1Q24's net interest income from banking operations (bankingNII) was US$113 billion, an increase of US$600 million over the previous month, of which the Argentinian business contributed a positive contribution of US$500 million, accounting adjustments to recognize cash flow hedging income contributed positively to US$200 million, and the sale of its French business had a negative contribution of US$100 million. Take a look at it specifically:
Subregionally, the UK RFB (UK RFB) Banking NII remained basically stable month-on-month, while Banking NII declined in Hong Kong, China due to the month-on-month decline in HIBOR in the first quarter.
Looking ahead, we think it is reasonable to use US$10.5 billion as the company's banking NII forecast benchmark for a single quarter. The main reasons are: 1) the 2Q24 Canadian business will not be consolidated due to the completion of the sale, involving about US$300 million in Banking NII; 2) the Argentine business is highly volatile. Although the 1Q24 Argentine business contributed 500 million US dollars to Banking NII, the company maintained the Argentine business's banking NII guideline of about 1 billion US dollars throughout the year.
The company maintains the 2024E Banking NII guideline of at least US$41 billion, but also said that the delay in interest rate cuts is expected to improve its net interest income performance or update the guidance in the interim results.
Profit forecasting and valuation
As the company's revenue performance was better than our previous expectations, we raised our 2024E profit forecast by 3.1% to US$26.66 billion, keeping the 2025E profit forecast basically unchanged. The current stock price corresponds to 0.9 times the 2024E net market ratio and 0.9 times the 2025E net market ratio. Maintaining an outperforming industry rating, we believe that the company's continued performance in delivering high ROTE and high shareholder returns will help support its valuation increase. The target price was raised by 8.0% to HK$82.60, which corresponds to 1.1 times the 2024E net market ratio and 1.1 times the 2025E net market ratio. There is 23.3% upside compared to the current stock price.
risks
Overseas interest rate cuts have exceeded expectations, and the macroeconomy of the main market has weakened beyond expectations.