CICC released a research report stating that they are maintaining the "outperform" rating. Taking into account the release of this year's bidding demand for multiple units and advanced maintenance, the full-year profit forecast is raised by 3% to 13.01 billion RMB, and the profit forecast for 2025 is maintained. Based on the upward revision of profit and the optimistic outlook for the demand for multiple units, the H-share target price is raised by 18% to HKD 6. The report states that the company's performance in the first half of the year exceeded the bank's expectations. Looking ahead, the bank believes that with the continuous increase in railway passenger traffic, the increase in the utilization rate and the extended service life of multiple units, the demand for multiple units and advanced maintenance is expected to be further released, benefiting the company's revenue and profit growth. $BOC HONG KONG (02388.HK)$ Due to the significant improvement in the company's ROE and the easing of concerns about asset quality, the target price has been raised by 4.7% to HKD 29.53, with a "Outperform" rating in the industry. The company's 1H24 performance is slightly higher than the bank's expectations. The current company valuation is still at a historically low level, and the bank believes that the discount may come from market concerns about the Hong Kong economy and asset quality. As the US interest rate cutting cycle approaches, the recovery of the macro economy and market sentiment in China Hong Kong is expected to drive an increase in company valuation.

CICC's main points are as follows:

The net interest margin performs well, and loans have remained relatively stable since the beginning of the year.

In 2Q24, the company's adjusted net interest income increased by 10.7% year-on-year and 1.6% quarter-on-quarter. The adjusted net interest margin was 1.62%, flat year-on-year and slightly increased by 1bp quarter-on-quarter. At the end of 1H24, customer loan balance decreased by 0.2% compared to the beginning of the year, while customer deposit balance increased by 5.8% compared to the beginning of the year, and the scale continued to outperform the market. Among them, BOC Hong Kong's RMB business grew rapidly, with RMB loans and deposits increasing by 17% and 32% respectively year-on-year.

Fee income has improved moderately.

In 1H24, the company's net fee income increased by 1.8% year-on-year. Among them, investment and insurance business, credit-related business, and non-credit-related traditional business increased by 7.2%, -7.8%, and +6.9% respectively year-on-year.

The asset quality of commercial property in Hong Kong, China is stable.

In 1H24, the company's cost of credit was 0.24%, a year-on-year increase of 10bp but a significant decrease of 36bp compared to the previous period. The non-performing loan ratio at the end of 1H24 was 1.06%, a slight increase of 1bp from the beginning of the year. At the end of 1H24, the company had HKD 351.6 billion in commercial property loans, of which HKD 89.6 billion were exposure to mainland Chinese real estate customers, and the remaining HKD 262 billion (about 15% of total loans) were mainly commercial property loans in Hong Kong, China, with a non-performing loan ratio of 0.16% and a mortgage loan ratio of 29%. The average LTV ratio is not higher than 45%. The bank believes that the company's customers are mostly local large-cap enterprises, and currently the risk of commercial property is more manageable.

The capital position is good, and the level of shareholder return is expected to increase.

At the end of 1H24, the company's core Tier 1 capital adequacy ratio was 20.0%, an increase of 1.0ppt from the beginning of the year. The company's dividend per share for 1H24 was HKD 0.57, with a payout ratio of 30%. Although the payout ratio decreased by 3ppt year-on-year, the dividend per share has steadily increased. The bank believes that compared to the mid-term payout ratio, the full-year payout ratio is more worthy of attention, and the bank remains bullish on the steady increase in the company's full-year payout ratio. In addition, considering the relatively strong capital position of BOC Hong Kong, the bank expects the company to effectively utilize its capital through dividends, share buybacks, or external mergers and acquisitions in the future.

Risks: Hong Kong's economic performance is below expectations, and the scope of interest rate cuts exceeds expectations.