Core views

The Standard Chartered Group has extensive network coverage in Asia Pacific, the Middle East, Africa, America, etc., which is highly compatible with the current major industrial transfers to these regions. The transactional bank+financial market model has given it distinct characteristics of three-dimensional service trading enterprises and diversified revenue generation. Attribution analysis and scenario forecasts show that the scale of trade and investment that continues to increase in key global trade channels can help Standard Chartered Group steadily cross the interest rate cycle through the two major channels of transaction banks and financial markets. Looking ahead, it is expected that revenue growth will remain steady, ROTE and dividend returns will continue to increase, and both growth and dividend attributes will be achieved. Standard Chartered Group's valuation is at the bottom of global banks. Its unique value and potential for continued growth have not been fully recognized by the market, and there is room for repair.

summary

The network covers a wide range of networks, and the first-level organizational structure: Standard Chartered Bank Group went through a series of mergers in its early years and has a history of more than 170 years of operation. The network covers 53 countries and regions in Asia Pacific, the Middle East, Africa, Europe and America. In particular, it has a deep layout in Asia. Hong Kong, China and Singapore are its two major bases, and the only international bank that fully covers the ten ASEAN countries. At the organizational structure level, big to public (corporate and investment banking), big retail (personal and small business banking), and smaller venture capital businesses form the Group's top three business lines. Previously, a matrix-type management system that intersected vertical management of global business lines and horizontal regional management was adopted. After the organizational structure was adjusted in 2024, vertical management of business lines was emphasized, management efficiency was improved, and global business collaboration was strengthened to meet the increasingly obvious new trend of global industrial transfer.

A powerful tool for big to public business through the cycle: transaction bank+financial market: As an international bank that coexists with global trade, transaction banking is one of the core businesses of Standard Chartered Bank. In 2023, it contributed more than 30% of revenue, mainly from the two major businesses of trade, working capital, and cash management. The strong revenue generation capacity of the cross-border and offshore business provided continuous momentum for its subsequent development. At the same time, Standard Chartered's financial market business is highly developed, with a revenue contribution of nearly 30% in 2023. It mainly consists of macro markets (interest rates, exchange rates, commodity transactions, etc.), credit markets (credit product transactions, underwriting, asset securitization, etc.), and securities services (escrow and securities collateral financing, etc.). It is important to note that Standard Chartered's financial market business is mainly for valet customers. It does not take positions or even gamble on its own. Nearly 70% of its revenue is a small, continuous traffic business. Relying on financial market licenses in multiple key regions, markets and asset classes, and trading capabilities that have experienced cyclical testing, Standard Chartered's financial market business not only serves financial institutions, but also a large number of physical enterprises. Therefore, the developed financial market business also provides great product delivery and capacity support for transaction banks.

Significant differences in serving global trade: HSBC relies on a customer base and product system, and pays more attention to SME customers, Standard Chartered Bank and financial market two-wheel drive, and focuses more on large enterprise customers: HSBC relies more on a huge customer base and rich transaction and settlement product system, and has an irreplaceable leading edge in the large SME customer base in important global trade channels. Standard Chartered, on the other hand, pays more attention to organic collaboration between transaction banks and financial markets, and is good at providing comprehensive services for companies that require issuance, trading, and hedging of financial market assets such as interest rates and exchange rates. Obviously, such customers are often larger. Therefore, unlike HSBC's focus on small and medium-sized enterprises, Standard Chartered's trading banking customers are mainly large multinational enterprises. Both banks' key regions are highly consistent with current industrial transfers to emerging economies such as Southeast Asia and the Middle East, but each has its own characteristics, and it is expected that revenue will continue to rise.

Transaction banking and financial market revenue size and interest rate driven attribution: We conducted a detailed attribution analysis of transaction banks and financial markets, and split their revenue growth into scale factors driven by trade volume and FDI and interest rate factors driven by interest rates. The results showed that transaction banking business revenue was more affected by scale factors, and scale and interest rate factors were approximately 1.4:1. Credit market revenue in financial markets is more affected by scale factors. Scale and interest rate factors affect about 2.1:1. Revenue from other businesses in the financial market is mainly driven by scale, especially the size of trading contracts related to the global financial market. It has little to do with the absolute value of interest rates and exchange rates, but it is closely related to the volatility of interest rates and exchange rates. Taken together, transaction bank+financial market revenue is affected by scale and interest rates about 1. 6:1. Continued growth in the scale of trade and investment can effectively hedge against interest rate fluctuations. Compared to the model where HSBC relies more on transactional banks, the Standard Chartered Bank and Financial Markets model is less sensitive to interest rates, because financial market operations are more clearly driven by scale and interest rate exchange rate fluctuations, and are not clearly related to the absolute value of interest rates.

A two-pronged approach to smooth the interest rate cycle: Looking at the scale of transaction banks and financial market revenue and interest rates in the context of nearly 20 years of global trade and industry, we found that within the industrial transfer cycle, trade and FDI investment scale dividends that follow industry transfers will greatly increase the contribution of scale factors, completely smoothing the impact of interest rate cycles, and the revenue of trading banks and financial markets showing strong scale-driven characteristics. However, in a cycle where there was no clear industrial transfer and global trade was lackluster, the scale factor declined markedly, and the impact on interest rates increased dramatically. Based on this, based on different assumptions about global industrial transfer prospects, in the context of Europe and the US entering an interest rate cut cycle, we further carried out a scenario analysis of revenue for the next three years. The results showed that under an optimistic scenario, due to a relatively large share of financial market business, it can provide strong upward revenue elasticity; under a neutral scenario, transaction bank+financial market revenue increases basically hedge the impact of interest rate cuts; in a pessimistic scenario, transaction bank+financial market revenue offsets the impact of interest rate cuts by 9-15 percentage points.

The growth path of the big retail business: Wealth management for wealthy Asian customers: Standard Chartered's big retail line contributes about 40% of the Group's revenue, and its extensive network in the Asian region has given it a strong gripper to grasp the international asset allocation needs of wealthy Asian customers. Standard Chartered's wealth management strategy focuses on affluent customers above AUM $25,000. Through accurate identification and diversified service systems, we expect that such high-margin customer groups will support the continuous optimization of Standard Chartered's retail business structure and continued revenue growth.

Global banks with both growth and dividends, and the lowest valuation have room for repair: as the core beneficiary bank of a new round of global industrial transfers, Standard Chartered's revenue growth rates are expected to be 6.5%, 5.7%, and 5.0% respectively in 2024-26, and there is a possibility that they will exceed expectations upward, steadily crossing the upcoming interest rate cut cycle. In terms of asset quality, it is expected that commercial real estate in mainland China, Bohai Bank, and some regions have passed the peak of increase in sovereign credit risk impairment measures. ROTE is expected to continue to rise from 10.1% in 2023 to 12.0% in 2024-26. As the most internationalized global bank, growth is outstanding. In terms of dividends, the total shareholder return is expected to be more than 2,746 billion US dollars and share repurchases of more than 2 billion US dollars in 2024. The total return on shareholders' cash is expected to be 75%, and the total dividend rate is expected to be 13.1%. At the same time, the company said it will continue to raise the level of dividends per share, and the dividend attributes will continue to strengthen. Standard Chartered's current valuation is only 0.53 times 24-year P/TB (0.46 times 24-year P/B), and the valuation is only slightly higher than Deutsche Bank among 14 globally operating international banks. We believe that the Standard Chartered Group's operating network is highly compatible with the new round of global industrial transfer, and will provide strong support for its long-term sustainable growth and growing dividend attributes. The current valuation does not reflect this upward outlook. There is room for repair. For the first time, the target valuation is 0.76 times 24-year P/TB (0.66 times 24-year P/B).