<Earnings First Take> HSBC (5 HK) FY23 results slightly below expectation
- FY23 results slightly below expectation with net profit at USD 22.4bn (consensus: USD 25.2bn). NIM dropped by 18bps q-o-q to 1.52%
- Management guidance for FY24F cost growth was 5% vs FY23 on a target basis. Other guidance largely remains unchanged.
- Reported RoTE of 14.6%; or 15.6% excluding strategic transactions and the impairment of BoCom, on track to its medium term targets
What’s new
HSBC (5 HK) FY23 net profit to shareholders was c.USD 22.4bn vs USD 14.3bn in FY22 (consensus: USD 25.5bn). Revenue are largely in line with the expectation and ECL charges lower than expectation while the costs are higher than expectation. On a target basis, FY23 costs were USD 31.6bn, up USD 1.8bn (up 6%) y-o-y. 4Q NIM dropped by 18bps q-o-q to 1.52%, which is below market expectation and the drop mainly comes 1) Argentina hyperinflation; 2) reclassification of cash flow hedge revenue referred to above; and 3) higher time deposit costs in HK. FY23 Revenue increased by 30.5% y-o-y to USD 66.1bn. Customer lending/ deposits balance by the end of FY23 were largely stable q-o-q at USD 939bn/ USD 1612bn respectively. FY23 ECL charge was USD 3.4bn, or 0.36% of average gross loans and advances. Reported RoTE of 14.6%; 15.6% excluding strategic transactions and the impairment of BoCom.CET-1 ratio of 14.8% vs guided 14-14.5%. HSBC announced buyback of up to USD 2bn to be completed ahead of 1Q24 results.
Our view:
Overall, we see HSBC’s FY23 results are slightly below market expectation. ROTE level is on track to its targeted mid-teens. Looking ahead, we expect more downside pressure in FY24F NIM when the interest rate begin the downturn cycle. HSBC will focus more on driving non-NII revenue growth and maintaining cost discipline. Its latest cost guidance is c.5% growth in 2024 costs on a target basis. ECL guidance remains unchanged at c.40bps for FY24F, despite of a lower-than-expected ECL charge in FY23. It maintains c.50% dividend payout ratio in FY24 and committed to consider special dividend of USD 0.21 per share in 1H24 following the sale of Canada. We have flattish earnings projection for FY24/25F while expecting c.11% div yield for FY24F. We have BUY with TP at HKD 71.7 on the counter.