The initial “Buy” rating was given, and the target price was HK$33.50. BOCHK (the “Company”) has continued to be stable and profitable, and there is strong certainty about expanding its business footprint. The retail and corporate business is developing steadily as the company's basic market, the insurance and treasury business strengthens the profit scale, and the company continues to expand its business scale in the Greater Bay Area and overseas. We expect net operating revenue to grow 6.5%/1.0%/6.1% and net profit to grow 11.5%/5.2%/10.8% in 2024-2026. Our target price of HK$33.50 is based on a net market ratio estimate, which corresponds to 1.05 times/0.99 times/0.94 times the 2024-2026 net market ratio. Given its steady growth prospects, BOCHK's valuation enjoyed a premium over the average 2024 net market ratio of its Hong Kong peers.

Bank of China Hong Kong is one of the top three banknote issuing banks in Hong Kong. It is also the only RMB clearing bank, maintaining a stable position in the RMB internationalization process. The company has established a three-region business joint development strategy centered around Hong Kong and driven by collaboration in the Greater Bay Area and Southeast Asia. BOCHK will benefit from three strategic opportunities: the internationalization of the RMB, the integration of the Greater Bay Area, and Chinese companies going overseas. With the strengthening of Hong Kong's position as an offshore RMB hub, BOCHK is fully prepared to seize the growth opportunities of RMB foreign exchange services and treasury management. At the same time, in the integrated development of the Guangdong-Hong Kong-Macao Greater Bay Area, the company will fully benefit from the increase in business scale brought about by cross-border commercial activities. Furthermore, the development of Chinese enterprises is becoming an important chapter in the development of Chinese enterprises. The company's layout in Southeast Asia provides solid support for enterprises to go overseas, which will bring the company more high-quality customers and business growth.

BOCHK's return on net assets has long been among the highest in the Hong Kong industry and is sustainable. We expect that the company's profitability will continue to grow steadily, mainly benefiting from: 1) the slowdown in the pace of interest rate cuts by the Federal Reserve will reduce the narrowing of the company's net interest spread. Thanks to the company's overall asset quality assets and fine debt cost control capabilities, the company's overall net interest spread will remain at a relatively stable level; 2) the real estate market is expected to bottom up. Due to the overall qualifications of the company's loan customers, the non-performing loan ratio is due to the industry level. After the internal housing adjustment stabilizes, real estate loan risk exposure will be further cleared, and impairment losses on non-performing assets will fall back to a low level; 3) The company will actively expand its business in Guangdong, Hong Kong, Macao and Southeast Asia to attract more diverse regional customers, which will help expand the size of the company's deposits and loans.

Furthermore, in the context of the accelerated integration of Guangdong, Hong Kong and Macao, and the gradual expansion of cross-border financial services, commissions for corporate payments, credit fees, and cross-border wealth management services are expected to increase steadily, and the insurance business is also progressing steadily under the opportunities of regional integration, jointly promoting the growth of non-interest income.

Catalysts: 1) The Federal Reserve may slow down interest rate cuts; 2) Cross-border Wealth Management Connect; 3) Favourable policies may boost the real estate market.

Risks: 1) The real estate sector is sluggish and asset quality deteriorates; 2) Hong Kong's credit demand is weak; 3) the economic downturn may exceed expectations.