HSBC (5 HK) 1Q22 result posted in-line with positive NIM outlook. Maintain BUY
- HSBC (5 HK) 1Q22 adjusted profit before tax landed at $4.7bn, down 25% y-o-y, due mainly to a net charge for ECL expense compared to a net release in 1Q21. The number reached 26% of consensus full year forecast and is considered in-line.
- Total revenue posted down 4% y-o-y, due to fewer fee income growth from its Wealth and Personal Banking as impact by the unfavorable market condition during the quarter and lower investment distribution revenue in Hong Kong.
- Loan growth posted +2% q-o-q and +4% y-o-y, driven by growth in mortgages and demand for trade financing. NIM landed at 1.26%, +7bps q-o-q and +5% y-o-y, as it benefit from the rise in policy rates.
- Adjusted ECL charge reached $642m, or 0.25% of average loan and advances, mainly to reflect a $250m net charges relating to Russian counterparties and $160m relating to China CRE (commercial real estate). Overall asset quality is considered stable with Stage 3 loans at 1.8% of total loan. It expected ECL charge to normalize toward 30bps in FY22.
- Operating expense posted down 3% y-o-y, as effort in cost-saving and lower performance-related pay were more than offeset the higher technology spend and inflation impact. It continues to expect its FY22 ajusted cost to be in-line with FY21 level.
- CET 1 ratio landed at 14.1%, down 1.7ppts q-o-q, due mainly to reflect a 0.8ppts impact from regulatory changes, 0.1 ppt from share buyback and 0.4ppts from fair value movement in Other Comprehensive Income (FVOCI) and growth in RWA.
- Looking ahead, HSBC remains its positive tone on NIM outlook as it benefit from the rise in policy rates and the expectation of hibor movement in Hong Kong. Despite a muted Q1 for its Wealth buisness in Hong Kong as impact by COVID-19-related restrictions, it expect growth to recover once the restrictions are lifted and continue to expect for a mid-single-digit loan growth in FY22.
- The $1bn share buyback announced in Feb-22 is expected to start in May, but further buybacks is unlikely n FY22 due to lower CET 1 ratio.
- Overall, we remain our posiitve view on HSBC.