Jefferies has issued a research report assigning BOC Hong Kong (02388) a target price of HK$48 and a rating of "Hold." The report, based on analysts' attendance at the company's corporate day, highlights key points regarding BOC Hong Kong's strategic layout in ASEAN, opportunities arising from Chinese companies expanding overseas, and the internationalization of the renminbi. Hong Kong remains the core market for its operations, and Jefferies anticipates that the favorable trends in net interest margin and loan growth will continue into the second quarter. A potential dividend distribution plan is expected to be announced in the first half of 2026.
According to the Jefferies report, the ASEAN business, while currently small, is experiencing rapid growth. It accounts for only 3.2% of BOC Hong Kong's total loans and, on a currency-adjusted basis, 5.8% of its operating income for the 2025 fiscal year. However, it has demonstrated strong growth over the past five years, with operating profit achieving a compound annual growth rate (CAGR) of 12% (despite flat loan volumes) and deposits growing at a CAGR of 9%, both exceeding the company's overall average. The non-performing loan ratio in this segment has decreased from 2.78% in 2024 to 2.11%. BOC (Malaysia) serves as the flagship institution in the ASEAN region, representing approximately 1% of BOC Hong Kong's loans and operating income for FY2025, with loans showing a 10-year CAGR of 11%. It operates with a localized model, serving both large Malaysian corporates and Chinese enterprise clients (over 1,300 accounts, with 40% expected to be added between 2023 and 2026).
Jefferies noted that Hong Kong interbank offered rates (including 1-month and 3-month tenors) have seen a slight increase since April, benefiting from a robust pipeline of initial public offerings (approximately 470 active applications as of April this year) and the upcoming dividend season. The SOFR-HIBOR spread has widened slightly compared to the first quarter (though most issues have been corrected). Coupled with a further stabilization in the Hong Kong property market, Jefferies believes the positive trends in net interest margin and loan growth for Hong Kong banks should be maintained in the second quarter.
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