Performance outlook
We expect 23H1 Bank of China Hong Kong's revenue to be +14.2% year on year and net profit of the parent company to +13.7% year on year. Net profit for 2023-2025 was +13.04%, +10.31%, -8.37%. The original profit forecast was for 2023-2024 +4.2%, 1.8% year-on-year. We maintained our “superior to the market” rating, with a 23-year PBR of 0.90x (the original valuation was 23-year PBR 0.95x) and a target price of HK$27.32 (original target price of HK$28.72).
Key Assumptions
We expect net interest income to be +40.6% year-on-year, and the net interest spread will continue to widen. According to HKMA data, the growth rate of loans in the first 5 months of 23 years was -0.5%, and the growth rate of deposits was -0.3%. The Bank of China Hong Kong 23Q1 loan was +4.3% from the end of '22, benefiting from customs clearance and economic recovery. Among them, loans to public loans are still the main driver of loan growth. However, the subsequent economic recovery fell short of expectations, so we conservatively expect 23H1 to grow at +2.7% from the end of the year '22. The Bank of China Hong Kong 23Q1 deposit was +5.5% at the end of '22, significantly superior to the industry, thanks to Bank of China Hong Kong's efforts to increase deposit stickiness. Affected by the increase in HIBOR, 23Q1 CASA accounted for 48.9%, a continued decrease of 2.8 pct from the end of '22. We expect the 23Q2 CASA share to decline further.
The 23H1 monthly average HIBOR was 3.52%, up 3.28 pct from the previous year and 2.03 pct from the full year of 2022. We expect that the return on asset-side interest-side assets of the Bank of China Hong Kong and the cost ratio of debt-side interest-bearing debt will continue to rise, and the net interest spread will widen further. We expect 23H1 to estimate a net interest spread of 1.31% and 1.20% for the full year of 2022.
We expect non-interest income to be under pressure. We expect that, on the one hand, the year-on-year decline in 23H1 net fee revenue closely related to market returns (securities and brokerage, fund distribution, trusts and custody) will be narrower than the year-on-year decline in 2022; loan commissions and bill order commission programs will be under pressure due to the predominance of operating loan types.
In terms of asset quality, although Bank of China Hong Kong's customer structure and risk control capabilities are relatively sound, we still recommend focusing on the uncertainty brought about by macroeconomic recovery falling short of expectations.
Risk:
The magnitude and speed of interest rate cuts were greater than expected, and asset quality fell short of expectations.