Citigroup has released a research report forecasting that Bank of East Asia (00023) will post an interim net profit of HK$2.2 billion, representing a 1% year-on-year decline. Pre-tax profit is anticipated to reach HK$2.9 billion, a 5% drop compared to the previous year, primarily due to increased impairment provisions and property revaluation losses.
Pre-provision operating profit (PPoP) is projected to be HK$6.0 billion, a 9% year-on-year increase, driven by a 12% growth in non-interest income. However, with the Hong Kong Interbank Offered Rate (HIBOR) in the first half of the year lower than in the second half of last year, net interest income is expected to decline by 3% on a half-year basis. The firm maintains its 'Buy' rating and a HK$16 target price for the bank.
In light of the uncertain outlook for the commercial real estate market, Citigroup has lowered its earnings per share forecast for the 2026 fiscal year by 9%. Conversely, EPS forecasts for the 2027 and 2028 fiscal years have been raised by 1% to 2%, reflecting stronger expectations for non-interest income growth.
The report suggests that the normalization of credit costs will support the bank's medium-term earnings growth. At its current price, the stock trades at a forecast price-to-book ratio of just 0.3 times for FY2026, with a projected dividend yield exceeding 6%, indicating that its valuation is not stretched.
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