BOCHK’s latest quarterly results outperformed its peers with stronger-than-expected net interest margin expansion (NIM), sequential fee income recovery, strong operating leverage & stable asset quality. With more interest rate hikes expected, we expect NIM can expand further in 4Q22 & 1H23. Its relatively high dividend yield of 5.6% & 7.1% in 2022E & 2023E respectively, is higher than its peers, which would lend further support to share price outperformance in the near-term. We reiterate our preference to BOCHK being the favoured play among HK domestic banks given a relatively more attractive valuation. Return-on-equity is estimated to expand to 9.1% & 11.2% in 2022E & 2023E respectively. Yet, the stock is trading at 0.79x forward price-to-book (P/B), which is around 21% discount to its historical average. We revise earnings forecasts by 8-12% in 2022E & 2023E on the back of the quality beat in results. We lift our fair value (FV) estimate to HKD36.5 by applying a higher valuation multiple of 1.2x forward P/B multiple, which is at +0.5 s.d. to historical average level.
With China's reopening, this stock has someupsides. It would Likely rally. However, against the backdrop of slower economic growth and high inflation rates, the Fed May taper faster than usual and this would pose a downside risk to the stock Price. In the short term, it is likely to be highly volatile so you deal at your own risk. I am not intending to invest though at the moment for this.
DYODD
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Good