BOC Hong Kong Holdings Ltd 02388

BOC Hong Kong Earnings: Higher Dividend to Support Share Price, FVE Unchanged

We keep our fair value estimate for BOC Hong Kong, or BOCHK, at HKD 33 following 2023 results that were largely within our and market expectations, while management's outlook does not lead to much change to our near- and midterm assumptions. Dividend payout of 53% was a nice surprise, but we still expect payout to ease to around our midcycle assumption of 50%. We think BOCHK is keen to keep dividends on a growth trajectory, and this should support some investor interest. The bank's capital position—with its common equity Tier 1 ratio at 19% in 2023, which we expect to be maintained at around 16% over our five-year projected period—allows BOCHK to continue to grow its dividends. We see BOCHK as one of our preferred banks. Our fair value estimate corresponds to a 2024 price/earnings of 10.6 times, and we think price/book of 1 time is backed by return on equity of 10%-11%.