Steady growth ahead with better asset quality
What’s New
• Expect 8% loan growth CAGR in FY21-24F with steady loan pipeline with large corporate clients
• Stable and benign asset quality expected ahead with small exposure to concerned segments
• More upside in fee income to be unlocked, despite shortterm volatilities
• Reinstate coverage with BUY; TP at HK$ 37.4
Investment Thesis
Better asset quality than peers. We expect BOCHK’s NPL ratio to continue to be better than its peers’ as it has higher bargaining power to select good-quality borrowers, such as China SOEs in HK.
Solid loan growth. BOCHK reported a higher-than-peers loan growth rate in the past few years with solid demand from large corporate clients. We expect a mid to high single-digit loan growth in FY22/23F.
Leveraging on BOC for emerging markets’ opportunities. With its broad branch network leveraging its parent company BOC, BOCHK has a strong position in GBA and ASEAN, which will serve as the next revenue growth engine in the long run.
Valuation:
We reinstate coverage with BUY and TP at HK$ 37.4, based on the Gordon Growth Model (14% ROE, 3% growth, and 12% cost of equity). Our TP implies a 1.2x FY23F P/BV, on par with its five-year P/BV average, supported by its ROE expansion.
Where we differ:
We have a higher earnings projection for FY23/24F. This is mainly driven by our positive outlook on its asset quality and credit cost. We expect lower-than-consensus provisions as we see the asset quality showing an improving trend in FY23/24F, with the expectation of regional economy recovery and the China property sector set to show a turnaround.
Key Risks to Our View:
Lower-than-expected HK GDP recovery; and weak synergies from its acquisitions in ASEAN, and GBA expansion.