3Q23 result slightly ahead
- 3Q23 profit fell 33% y-o-y to US$2.06bn, narrower than market expected thanks to recovery in dealmaking activities
- FICC and equities business remained robust with wallet share gains
- Exiting GreeySky another key milestone in strategy execution. Maintain BUY with TP of US$385
3Q23 result top estimates. 3Q23 net revenues were down 1% y-o-y to US$11.8bn, reflecting lower Asset & Wealth Management (AWM) revenues (-20% y-o-y) dragged by the negative return in both private and public equities, largely offset by higher net revenues in Global Banking & Markets (+6% y-o-y) as strong performance in FICC and equities and dealmaking recovery continued. OPEX were up 18% y-o-y to US$9.1bn, reflecting write-down of GreenSky and impairment of CRE investments totaled at US$0.9bn and 16% y-o-y increase in staff costs. Net profit as a result was down 33% to US$2.06bn. Annualised ROE was at 7.1%, and would have been 10.2% if excluding historical principal investments, GreenSky and other selected items.
ROE improvement underway. Despite that YTD annualised ROE was at 7.6% and remained distant from its medium target of mid-teens, we think the strategy execution has been on the right track and is positive to the ROE trajectory. Dealmaking recovery from decade-low level is expected to continue as more private equity firms have accepted the lower valuation today. The continued disposal of principal investments will also enhance ROE for AWM business and free up capital for Global Markets businesses, where the company has continued to grow its wallet share. Also, we expect the drag from consumer businesses to narrow after confirming the sales of GreenSky (personal loan business) and hiring a veteran to focus on managing the card partnerships. Maintain BUY with TP of US$385.