2015 results in line with expectations
HSB reported 2015 PPOP/net profit ofHK$20.6bn/27.5bn (flat/+82% YoY); excluding gains fromits partial disposal of Industrial Bank, its bottom line rose 3.6%to HK$16.8bn.
Trends to watch
Softened loan growth; mortgages the main driver. Loangrowth declined from 2014’s 12.4% to 4.6%, with rapid growthin mortgages (10.3%) partially offset by sluggish corporatedemand in HK and prudent lending in the Mainland. We expectoverall loan growth to decline to 2.9% in 2016.
NIM continues to shrink. HSB witnessed a flight to quality asChina’s macro slowdown continued. NIM could be underpressure before the US rate hike effect filters through.
Solid asset quality with limited Mainland exposure. HSB’slimited China exposure makes it largely immune from asset riskconcerns onshore. NPL ratio stayed low (0.4%) with credit costsof 0.16%.
Special dividend more of a one-off event; but sufficientcapital supports sustainable payout. Excluding the final andspecial dividend, CET 1 CAR stayed at 15.7%, the highest amonglocal banks and sufficient to meet regulator’s ~11~12% Basel-IIIend-point requirement. Given a higher portion of loan portfolioare now less capital-consuming mortgages, RWA density edgeddown to 38%. We believe HSB is able to maintain its normaldividend level despite soft loan growth and narrowing margin.2016e dividend yield is now at 4.2%.
Earnings forecast
We increase 2016e EPS by 10.2% to HK$9.45. MaintainHOLD with a new TP HK$149.21 (-6.5%), implying 1.9x2016e P/B, fair considering the mild growth and 12~13% ROE.
Risks
Dropping Hong Kong property prices.