Analysts at Goldman Sachs have reiterated a Buy rating on BOC HONG KONG (HKEX: 02388), maintaining a 12-month target price of HK$53.3. The firm forecasts the bank's second-quarter net profit at HK$10.51 billion, representing a 2% year-on-year increase but a 16% sequential quarterly decline. Pre-provision operating profit is anticipated to fall 4% year-on-year and 3% quarter-on-quarter to HK$15.101 billion.
The report attributes the expected double-digit quarterly earnings decline primarily to two key drivers. Firstly, credit costs are normalizing, with loan loss provisions as a percentage of average loans projected to recover from an exceptionally low 18 basis points in the first quarter. Despite structural improvements in credit trends earlier, Goldman Sachs adopts a more cautious stance, citing management's acknowledgment of remaining isolated stress points within the Hong Kong commercial real estate portfolio. The firm forecasts a full fiscal year 2026 credit cost of 29 basis points.
Secondly, other non-interest income is also normalizing from previous levels. However, net interest income, net fee income, and operating expenses are expected to remain stable, supported by a steady three-month Hong Kong Interbank Offered Rate, which rose 7 basis points in the second quarter.
Key Investor Focus Areas
Goldman Sachs anticipates investor attention at the upcoming second-quarter analyst briefing will center on three main topics. The primary focus is an expected update on the capital return plan for 2026-2028. The firm projects BOC HONG KONG could return approximately HK$12.7 billion in capital. Aligning its capital adequacy ratio benchmark with the Hong Kong banking sector average could release at least 1 percentage point in capital. This amount is expected to be distributed as special dividends over the three-year plan, potentially lifting the total payout ratio from the historical three-year average of 54-56% to around 67%. This would translate into forecast dividend yields of 6.1%, 6.6%, and 6.9% for 2026, 2027, and 2028, respectively.
The other key areas for discussion are the outlook for exposures to Hong Kong and mainland China commercial real estate, and the potential impact of new cross-border regulatory rules from China, including the specific effects of recently announced measures to deepen financial connectivity between the mainland and Hong Kong on BOC HONG KONG.
Goldman Sachs has kept its earnings forecasts for BOC HONG KONG unchanged for the 2026 to 2028 period.
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