The company's recent situation
We organized an offline reverse road show for Standard Chartered Group management this week. The company exchanged views with institutional investors on issues such as global layout, the impact of interest rate cuts, growth in non-interest income, and asset quality.
reviews
Rooted in emerging markets, benefiting from industrial chain transfers. Standard Chartered has a wide range of outlets and business coverage around the world. As of the end of 2023, the company was exhibiting in 53 markets, 21 of which are located in Asia. Standard Chartered is also the only international bank in the world covering all 10 ASEAN countries. Due to its long history of being rooted in emerging markets, Standard Chartered has accumulated license advantages, commercial relationships, and customer base in the region. In the current context of global industrial chain transfers and Chinese enterprises going global, we believe Standard Chartered can use its emerging market layout advantages to acquire customers.
Continued net inflow of wealth management clients' assets. In the five quarters since 1Q23, Standard Chartered added an average of 65,000 new wealthy customers each quarter, adding an average of about $8 billion in assets from wealthy customers, which is equivalent to 12% annual AUM growth rate for wealthy customers. Standard Chartered's wealth management business revenue increased 8% year over year in 2023. We believe the continued inflow of wealthy customers is a core driver of the company's rapid growth in wealth management revenue.
The impact of interest rate cuts is manageable, and net interest income is expected to continue growing. As of 1Q24, the company's top ten currency-weighted implied interest rate curves showed that the 24-25 average interest rate fell by 12 bps and 39 bps, respectively, with a static negative impact on net interest income of about US$90 million and US$300 million. However, the expiration of short-term hedging instruments in 24-25 years, growth in scale, and optimization of the balance and liability structure are all expected to contribute positively to net interest income. The company is confident that it will achieve the 2024 net interest income guidance of $100-10.25 billion and that net interest income will continue to grow in the future.
Asset quality remains stable. Standard Chartered's provision for 1Q24 was US$176 million, with a credit cost of 24 bps, of which the CIB, WRB1, and Ventures departments had provisions of US$0, 136 million, and US$40 million, respectively.
At the end of 1Q24, the company's Early Alerts, CG12, and Phase 3 loans all declined month-on-month. I think improved risk control and lower credit costs are also important reasons why Standard Chartered ROTE has increased in recent years.
Profit forecasting and valuation
We believe that although Standard Chartered still needs continuous optimization in terms of operating efficiency, its regional positioning and revenue structure make it possible for the company to better benefit from the growth of non-interest income during the interest rate cut cycle and enjoy the growth of emerging markets. The current stock price is trading at 0.5 times, 0.5 times the 2024E and 2025E net market ratios. We expect the 2024E and 2025E shareholder returns to be 11% and 9% respectively, which is relatively cost-effective. We recommend paying attention to their investment opportunities. Keep profit forecasts, ratings, and target prices unchanged, corresponding to net market ratios of 0.6 times and 0.6 times 2024E and 2025E, with 7.4% 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.