发帖
雷达卡
25 November 2008
Hong Kong Banks
A tough time battling multiple
headwinds
Michael Chang, CFA
Research Analyst
(852) 2203 6203
michael-p.chang@db.com
Sophia Lee
Research Analyst
(852) 2203 6226
sophia.lee@db.com
Shelly Huang
Research Associate
(852) 2203 6130
shelly.huang@db.com
Initiate with a marketweight rating on HK. Top pick is Hang Seng Bank.
We expect an increasingly challenging environment across all key lines of the P&L
heading into FY09 and FY10 and believe that consensus is still playing catch-up on
earnings downgrades. Valuations look very cheap on our below-consensus earning
forecasts, with P/E and P/B multiples at or near-crisis lows. We initiate with a Buy
rating on Hang Seng, Hold ratings on HSBC and BOC (HK), and a Sell rating on
Bank of East Asia.
Deutsche Bank AG/Hong Kong
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at http://gm.db.com or by calling 1-877-
208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.
Industry Strategy
Top picks
Hang Seng Bank (0011.HK),HKD87.00 Buy
Bank of East Asia Ltd (0023.HK),HKD14.32 Sell
Companies featured
Hang Seng Bank (0011.HK),HKD87.00 Buy
2007A 2008E 2009E
P/E (x) 12.8 10.3 11.3
Div yield (%) 5.2 6.3 6.3
Price/book (x) 5.4 2.9 2.7
Bank of East Asia Ltd (0023.HK),HKD14.32 Sell
2007A 2008E 2009E
P/E (x) 17.4 55.9 8.0
Div yield (%) 3.6 1.6 6.4
Price/book (x) 2.8 0.7 0.7
BOC Hong Kong Holdings (2388.HK),HKD7.71 Hold
2007A 2008E 2009E
P/E (x) 13.5 11.8 7.4
Div yield (%) 4.7 5.9 10.1
Price/book (x) 2.5 0.9 0.9
HSBC Holdings (0005.HK),HKD74.75 Hold
2007A 2008E 2009E
P/E (x) 10.9 6.5 8.0
Div yield (%) 5.0 9.5 8.5
Price/book (x) 1.6 0.9 0.9
Global Markets Research Company
Singapore banks’ 3Q08 results hold valuable lessons for HK banks’ outlook
We believe that the Singapore banks’ recent 3Q08 reporting season holds valuable
lessons about how weak HK banks’ key P&L line items will be at the upcoming
2H08 reporting season. In some cases, the Singapore results are a useful
benchmark to estimate losses on investment securities from the collapse of
US/Europe financial institutions (FI) in 3Q08 (before governments across the globe
decided to bail out their banks). This analysis gives us greater confidence that
investors seem to have overreacted to concerns about potential losses on HSB’s
investment securities portfolio, in particular their larger-than-peer FI exposure.
Top-line income growth is under pressure on multiple fronts
We believe net interest margins are under pressure due to five reasons: (i) lower
interbank yields, due in part to a shortening of asset duration; (ii) asset yield
pressure from the recent PRIME rate cut, with more possibly on the way; (iii)
lower ”free funds” benefits; (iv) lower HIBOR-savings deposit rate spread, and (v)
a loan mix shift away from the higher risk but high-return SME loans. The credit
crunch is just one of a number of reasons why we expect slower loan growth.
Market-sensitive fee income sources are also under pressure, trade finance fees
are likely to slow, the “minibond” saga is leading to a distrust of bank salespeople
that is virtually drying up structured product sales and trading income is likely to
remain weak in 2H08.
Asset quality has clearly worsened in recent months, especially for SMEs
Our discussions with the HK banks lead us to believe that 2H08 results could start
to show rises in HK SMEs’ NPLs, in particular in the manufacturing industry. Given
the collapse of a number of global financial institutions in 2H08, we also expect
the HK banks to see a rise in provisioning of their investment securities portfolio,
although we do not expect this rise to be too significant or for it to recur in 2009
given the global bailouts of banks.
Valuation multiples are pricing in another crisis for the HK banks
Valuations on P/E and P/B look cheap at or near crisis levels, and the market is
pricing in a lot of bad news. We believe HSB is well placed to continue its
outperformance vs. its peers given its better outlook, even though it currently
trades at a substantial premium to its peer group. We value the banks using a
combination of valuation approaches, including (ROE-g)/ (COE-g) and SOTP
approaches. Key downside risks: the global economy entering into a depression
and continued de-leveraging of hedge funds pressuring valuation multiples. Key
upside risks: success of global central banks in unlocking the credit markets and
encouraging lending and faster-than-expected economic recovery (see pp. 21-29).
Table of Contents
Executive summary ........................................................................... 3
Being hit on multiple fronts.......................................................................................................3
Margins to trend down..................................................................... 5
Pressure on net interest margins from a number of sources ...................................................5
Loan growth likely to slow ............................................................. 10
We expect past drivers of system loan growth to be the most vulnerable ............................10
Non-interest income pressure........................................................ 13
Non-interest income also faces pressure from multiple sources............................................13
Watch out for asset quality ............................................................ 17
Entering into a downcycle, with bad debts set to rise............................................................17
Impairment charges on the securities portfolio, particularly to FI ...........................................20
Valuation .......................................................................................... 22
Crisis-level valuations suggest a lot of bad news is priced in .................................................22
Valuation multiples relative to history – forward multiples......................................................23
Valuation multiples relative to history – trailing multiples........................................................24
Relative valuation comparables...............................................................................................26
Bear case scenario analysis – What if economy worsens further? .........................................27
Key risks ........................................................................................... 29
HK banking industry overview ....................................................... 30
PRIME and HIBOR rates are important drivers of NIM...........................................................30
Deposits – low interest rate affecting deposit amount and mix..............................................31
Loans .....................................................................................................................................32
System loans snapshot as of 30 June 2008 ...........................................................................34
Mortgage loans.......................................................................................................................35
Manufacturing, and wholesale and retail trade loans..............................................................36
Loans to Mainland China.........................................................................................................37
Fee income............................................................................................................................40
Hong Kong banks’ exposures to risky assets and bonds........................................................42
Industry profitability ................................................................................................................42
Hong Kong banks market share by loans................................................................................44
Accounting change - reclassification of financial assets .........................................................44
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