BOC Hong Kong Attractively Priced at 0.89 Times Book Value; ROE to Rise Even as Rate Cycle Turns

We maintain our narrow-moat rating for Bank of China Hong Kong, or BOCHK, after its 2022 full-year results announcement. Our unchanged fair value estimate of HKD 37 is equivalent to 1.3 times 2022 book value, which implies 10.8 times earnings assuming midcycle return on equity, or ROE, of 12% or 10 times earnings assuming ROE of 13%. With 46% upside from the current share price around 0.89 times 2022 book value, we think BOCHK looks quite attractive considering its relatively low credit risk, high capital levels, and secular prospects for regional growth both between Hong Kong and mainland China and in Southeast Asia, where BOCHK in 2016 acquired the assets previously owned by its parent.