BOC Hong Kong Earnings: Better Than Expected, but We Cut Valuation Modestly as Mainland Rates Fall

Interim results from Bank of China Hong Kong, or BOCHK, were better than we expected. The earnings upside was attributable to loans growing 4.3% from year-end 2022 versus a 0.6% decline for the Hong Kong banking market as a whole, resulting in a 73-basis-point increase in BOCHK’s market share to 15.84%. Also, better-than-expected expense control brought the cost/income ratio to only 25.5%. Net interest margin dipped 3 basis points from the second half of 2022 and was up 43 basis points year on year, perhaps slightly short of the overall Hong Kong market trend for the first half of 2023 but BOCHK’s net interest income still outperformed peers given its increase in loan market share. Fee income was unsurprising, rebounding 12.5% from the second half of 2022, and annualized credit costs remained low at 14 basis points of loans. BOCHK’s capital levels also continue to be extremely strong, with the common equity Tier 1 ratio rising to 19.0%.