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.
