Hang Seng Bank Earnings: Better NIM Offset by Slower Loans Growth; Shares Still Attractive

Hang Seng Bank's 2023 results reflected stronger net interest margin, or NIM, than expected. We think this helped propel its share price up more than 9% on the afternoon of the results release. We now factor in a more resilient NIM in 2024 partly offset by higher credit cost and slower loans growth. But we also anticipate a pick-up in mainland China and Hong Kong economic activity from 2025 coupled with falls in the US interest rates that should allow loans growth to recover and help offset declining NIM. These assumptions lead to a 4.6% rise in our 2024 net profit forecast and minimal changes in later years. We expect return on equity to hover around 12%-13% over the next five years. Our fair value estimate remains at HKD 110, which prices Hang Seng Bank at 1.3 times 2024 price/book. We think this is fair, given average ROE of 12.6% for 2024-28. We remain buyers of Hang Seng Bank at its current price level. 2023 dividend per share of HKD 6.50 is yielding an attractive 7.3% at the HKD 89.30 share price.