DBS: BOC Hong Kong Holdings Ltd – Buy Target Price HK$37.40

<Earnings first take> BOCHK (2388 HK) 1H22 results in line

What’s new 

• BOCHK reported net earnings to shareholders of HKD 13.47bn, or 7.1% y-o-y growth, which is in line with consensus expectation
• Operating profit increased by 8.6% y-o-y to HKD 17.7bn. Adjusted NII increased by 8.7% y-o-y to HKD 17.66bn. Fee income declined by 22.7% y-o-y to HKD 5.14bn due to market volatility
• Adjusted NIM (adjusted for foreign currency swap contracts) increased by 5bps h-o-h or 3bps y-o-y to 1.13%, while the unadjusted NIM declined by 5bps h-o-h or 9bps y-o-y to 0.99%
• Total loans increased by 5.1% h-o-h to HKD 1.68tr. Customer deposit increased by 3% h-o-h to HKD 2.4tr. LDR ratio increased from 68.6% by FY21 to 70.03% in 1H22.
• Impaired loan ratio increased from 0.29/0.27% in 1H21/FY21 to 0.46% in 1H22
• ROA/ROE increased by 2bps/42bps y-o-y to 0.78/8.84%
• CET-1/CAR ratio increased by 43/44bps from FY21’s level to 17.73%/21.88%
• Interim dividend of HKD 0.447 per share, or c.35% payout ratio.

Our view 

• BOCHK reported steady revenue growth in 1H22. Loan growth remains stronger than peers. The decline in fee income is in line with market trend. Net trading gain also show robust growth.
• Still, NIM and asset quality is worse than expected. Unadjusted NIM was showing a declining trend in the interest rate upward cycle, with average funding costs increased by 14bps y-o-y to 0.36%. NPL ratio increased by 19bps h-o-h to 0.46%, though still lower than peers.
• We currently have BUY with TP at HKD 37.4 on the counter. The share price is now trading at 0.9x FY23F P/B, or below its 5-yr average.