CICC released a research report stating that it maintains a 'outperform industry' rating for BOC Hong Kong (02388) with an unchanged target price of HKD 29.53. BOC Hong Kong announced its 3Q24 performance brief: Revenue of 18.479 billion Hong Kong dollars (+4.2% above the bank's expectations), +3.9% year-on-year; Operating profit of 12.987 billion Hong Kong dollars (+5.7% above the bank's expectations), +7.8% year-on-year. The performance slightly exceeded the bank's expectations, mainly driven by the favorable performance of net interest margin and net trading income.

CICC's main points are as follows:

Optimization of asset-liability structure drives stabilization of net interest margin.

The company's adjusted net interest income in 3Q24 increased by 1.8% month-on-month, with a quarterly net interest margin rising by 1 basis point to 1.63%. This was mainly due to the company's optimization of the asset-liability structure, dynamic management of bond investments on the asset side, increase in bond investment yields, strengthened deposit pricing and term management on the liability side. At the end of 3Q24, CASA deposits accounted for 48.4%, up 2.66 percentage points from the previous quarter.

Loan demand remains weak.

As of the end of 3Q24, the company's total loans, customer loans, and customer deposits increased by +5.6%, -1.6%, and +8.1% respectively year-on-year. Quarterly, they increased by +4.0%, -1.8%, and +2.6%. Deposits continued to grow well, but loan demand remains weak.

Fee income is moderately recovering.

Fee income increased by 4.6% year-on-year in 3Q24, with year-on-year growth rates increasing each quarter since 2024. Specifically, the company noted significant improvements in fee income from insurance and fund distribution, forex trading, REITs and custody services, and payment services; however, loan commissions decreased year-on-year due to poor crediting demand.

Net trading income is the highlight of this quarter.

In 3Q24, other non-interest income was 1.28 billion Hong Kong dollars, a year-on-year increase of 29.9%, mainly from the good performance of net trading income related to forex. At the same time, the boc hong kong bonds disposal operation usually occurs in the second and fourth quarters. The bank believes that the bond disposal-related losses in this quarter have little impact on the company's other non-interest income.

Credit costs are relatively stable on a quarter-on-quarter basis, with a slight increase in non-performing loan ratio.

The company made provisions of 1.242 billion Hong Kong dollars in 3Q24, mainly due to the weakening macroeconomic expectations leading to an increase in stage one and stage two provisions. The quarterly annualized credit cost in 3Q24 was 0.29%, up 2 basis points quarter-on-quarter. The non-performing loan ratio at the end of 3Q24 was 1.11%, up 5 basis points quarter-on-quarter.

Risks: Unexpectedly large decrease in interest rates, worsening of risks related to real estate exposure.