Hang Seng Bank's Full-Year Result Below Expectations

We believe that the 10% drop in Hang Seng Bank’s, or HSB’s, share price on Tuesday following disappointing results is unwarranted, and the shares are looking more attractive although investors may want more of a risk buffer before buying. Second-half 2021 performance fell short of both our and the market’s expectations mainly due to higher credit costs and weaker net fee income, which also led to a lower-than-expected dividend of HKD 5.10 per share. We cut our 2022 net profit estimate by 10% to reflect the pandemic challenges in Hong Kong. However, we think HSB’s net interest margins, or NIM, will benefit from the rising interest rate environment from 2023 onward and raise our fair value estimate to HKD 177 from HKD 163. We see EPS growing at an average 19% from 2023 to 2026 as the impact of rate increases flow through.