Core views

The new CEO has been replaced by the current CFO, continuing HSBC's tradition of internal promotions at the helm, and the consistency of core strategies is guaranteed. Furthermore, the CEO's decision before the third quarter will help HSBC communicate more clear medium- to long-term performance goals and specific development plans to the market before the upcoming interest rate cut cycle, thereby stabilizing market confidence and expectations. In the long run, as the global industrial transfer process gradually progresses, the continuous increase in the scale of trade and investment can ensure that HSBC can effectively hedge against interest rate fluctuations. As a result, it has shown strong steadiness in terms of revenue growth, ROT E, dividend returns, etc., effectively breaking away from long-term restrictions on interest rate cycle types, and achieving continuous and stable valuation increases.

occurrences

On July 17, HSBC Holdings announced that Georges Elhedery (Georges Elhedery) has been appointed as the Group's Chief Executive Officer and CEO, effective September 2, 2024.

Brief review

1. The new CEO was replaced by the current CFO, continuing the consistent tradition of promotion within the HSBC helm, and the consistency of core strategies is guaranteed. According to HSBC's announcement, Mr. Ai Qiaozhi, the current Group Director and CFO, has been appointed as Group CEO and will officially take office on September 2, 24. Mr. Ai Qiaozhi joined HSBC Holdings in 2005 and began working as Group CFO in January 2023. Previously, he was the co-head of Global Banking and Asset Markets (GB&M) and led the capital markets and securities services sector.

In addition, he was the Group's CEO for the Middle East, North Africa and Turkey from July 2016 to February 2019. Mr. Ai Qiaozhi joined the HSBC Group in 2005 and has been working at HSBC for nearly 20 years. He has a deep understanding of HSBC's corporate strategy and corporate culture. His succession as CEO is also in line with HSBC's consistent tradition of being promoted to the helm from within itself, which is conducive to stabilizing market expectations and strengthening the company's strategic confidence.

Judging from the history of the new CEO, Mr. Ai Qiaozhi was previously the co-head of the GB&M department and the executive president of the MENA region. Currently, one of HSBC's most important strategic cores is the development of global transaction banks and global trading networks. The new CEO has experience in the global banking sector, which is also conducive to the consistency and smooth implementation of HSBC's current core strategy. According to Group Chairman Du Jiaqi, “Ai Qiaozhi is an outstanding banker and leader. He has performed well in leading reforms, driving growth, streamlining structures, controlling costs, and focusing on execution. During his career, Ai Qizhi served in many regions of Asia, the Middle East, and Europe. Since joining the board as Group Chief Financial Officer in early 2023, and during the selection process of the Group's CEO, he has shown strategic insight and international perspective. We look forward to HSBC's next phase of development and growth under his leadership.” It also fully explains that the new CEO will also continue to maintain HSBC's current core strategic goals of reducing costs, hedging the risk of falling interest rates, and developing global transaction banking services to drive steady improvement in ROE.

2. The determination of the current CEO will help HSBC establish more clear performance goals and development plans before the upcoming interest rate cut cycle, and help stabilize market expectations. After the quarterly report, HSBC made it clear that it will maintain its performance guideline of 41.1 billion dollar net interest income in 2024. Furthermore, credit costs will remain at 0.4% in 2014, while operating expenses will remain within 5% year-on-year growth. According to the performance guidelines, HSBC Holdings' annual profit is expected to maintain a slight positive growth rate, and the RoTE level will remain stable at around 15%. However, since Mr. Qi Yaonian is about to retire as CEO, management has not provided more clear guidance on the company's long-term development plans and performance goals. Facing the upcoming US dollar interest rate cut cycle, the market is concerned about whether HSBC can maintain a stable median ROE level for a long time. Therefore, establishing a CEO candidate when the interim report is about to be disclosed will help HSBC communicate more clear medium- to long-term performance goals and specific strategic plans to the market before the upcoming interest rate cut cycle, thereby stabilizing market confidence and expectations.

It is expected that the new CEO will provide relatively more positive guidance on future performance goals.

3. Investment advice: The new CEO will be replaced by the current CFO, continuing the consistent tradition of promotion within the HSBC helm, and the consistency of core strategies is guaranteed.

Furthermore, the CEO's decision before the third quarter will help HSBC communicate more clear medium- to long-term performance goals and specific development plans to the market before the upcoming interest rate cut cycle, thereby stabilizing market confidence and expectations. According to current performance guidelines, HSBC Holdings' profit is expected to maintain a slight positive increase in 24 years. At the same time, assuming a total repurchase scale of 9 billion US dollars in 24 years, the total shareholders' cash return corresponds to a dividend rate of 15.3%, and the advantage of high dividends is remarkable. In the long run, as the process of global industrial transfer gradually progresses, the continuous increase in the scale of trade and investment can effectively hedge against interest rate fluctuations. Combined with the additional addition of the retail wealth business, it is expected that HSBC Holdings will smoothly cross the upcoming European and American interest rate cut cycle, show strong steadiness in terms of revenue growth, ROTE, and dividend returns, effectively break free from the long-term constraints of interest rate cycles, and achieve continuous and stable valuation increases.

Assuming the completion of the Argentine business in 24, revenue growth rates are expected to be 1.1%, 0.4%, and 0.6% in 2024-26, respectively, and profit growth rates of 0.7%, 0.2%, and 1.2%, respectively. In 2024, the cash dividend rate was 67% (including a one-time special dividend of 17%), and the share repurchase amount was 9 billion US dollars. The total return on shareholder cash was 106%, and the total dividend rate was 15.3%. ROTE is expected to remain in the 14.5%-14.9% range in 2024-26. With strong support from performance, the dividend level is stable and sustainable. The current valuation is 1.01 times 24-year P/TB (0.94 times 24-year P/B), maintaining the buying rating and leading position in the banking sector.

4. Risk warning: (1) The extent or time of the Federal Reserve's interest rate cut exceeded expectations. (2) The global macroeconomy has entered a new round of recession, or real estate companies in mainland China continue to be exposed to risks, affecting the asset quality of HSBC Holdings and leading to a sharp decline in profits. (3) The company's dividend rate may fall short of expectations due to special reasons such as policy restrictions. (4) Some regions where HSBC Holdings operates may have sovereign credit risk. (5) Global industrial transfers are uncertain, geopolitical frictions, or US industrial restrictions may hinder the globalization process, which in turn has led to a sharp decline in the scale of global trade and capital flows, causing the development of the company's transaction banking business to fall short of expectations.