CICC lowered the 2024E profit forecast of HSBC Holdings (00005) by 17% to USD 22.051 billion, and raised the 2025E profit forecast by 33% to USD 21.82 billion.
Zhongtong Financial APP learned that CICC released a research report stating that due to HSBC Holdings (00005) advancing the completion time guide of the sale of its business in Argentina to 2H24, it is expected that the related USD 5 billion foreign exchange reserve loss will be included in the 2024E, but as the bank emphasized earlier, this is only an internal adjustment of shareholder equity and will not affect shareholder equity, capital adequacy ratio, dividends and buybacks. However, based on this forecast change, the bank lowered the 2024E profit forecast by 17% to USD 22.051 billion, and raised the 2025E profit forecast by 33.0% to USD 21.82 billion. The bank maintains HSBC's "outperform" rating, but it raised the target price by 5.7% to HKD 87.3 due to the bank's forecast that the company's adjusted ROTCE will be better than expected. The company's 2Q24 performance was significantly higher than the bank and market expectations.
CICC's main points are as follows:
Net interest income is slightly better than the bank and market expectations, and the company raised its 2024E guidance.
HSBC's 2Q24 banking net interest income (Banking NII) was USD 10.9 billion, down 3.5% month-on-month, mainly due to: 1) a negative impact of USD 0.3 billion from the disposal of Canadian business; and 2) the decline of HKD interest rates dragging down USD 0.1 billion. HSBC raised its full-year Banking NII guidance to USD 43 billion, including the assumption of a USD 1 billion Banking NII contribution from Argentine business. In fact, as of 1H24, Argentine business has accumulated a total contribution of USD 0.9 billion to Banking NII. Due to the volatility of Argentine business, the bank believes that the company did not adjust this assumption out of caution.
Disclosing details of structural hedging, the interest rate sensitivity is significantly reduced.
In this quarter, HSBC disclosed the details of its structural hedges: 1) At the end of 2Q24, the company's structural hedge balance was USD 504 billion, an increase of USD 25 billion from the end of last year, with an average interest rate of 2.8%; 2) The company expects to have USD 55 billion and USD 105 billion of structural hedging maturing in 1H24 and 2025 respectively, with an average interest rate of 2.8%. Thanks to the increase in structural hedging, the interest rate sensitivity of HSBC's Banking NII to a 100bp interest rate change further decreased from USD 3.4 billion at the end of last year to USD 2.7 billion. The company said at the earnings conference that it will further increase the size of its structural hedging, and the pace in the second half of the year may be similar to that of the first half.
Positive loan outlook.
Excluding exchange rate factors, HSBC's customer loans at the end of 2Q24 increased by 1% month-on-month, and customer deposits increased by 2% month-on-month. Corporate loans in Hong Kong, China still have a drag, but other markets in Asia have good demand, and UK mortgages continue to grow. The company said at the earnings conference that it has seen signs of stabilizing loan demand in Hong Kong, China and the UK, and that a rate cut would also be beneficial for improving demand.
Risk
The rate cut was more than expected, and the main market macroeconomic performance was weaker than expected.
