Furui: Lowering the average interest rate forecast for the 2025 fiscal year by about 150 basis points, lowering the target price of Hang Seng Bank (00011) and Bank of East Asia (00023).

15:15 17/09/2024

Furui's forecast for Hang Seng's 2025 fiscal year earnings per share and dividend per share is 7% to 8% lower than market expectations.

Fulai released a research report stating that it has lowered the target price for HANG SENG BANK (00011) from 80 Hong Kong dollars to slightly to 79 Hong Kong dollars and rated it as "underperforming the market"; and it has also lowered the target price for BANK OF EAST ASIA (00023) from 10 Hong Kong dollars to 9.5 Hong Kong dollars, with a rating of "hold". Fulai still believes that non-performing loans (NPL) for Hang Seng have not yet peaked, and due to high vacancy rates and falling rents, even with a 150 basis point rate cut, Hong Kong commercial real estate interest coverage remains tight. The bank pointed out that due to recent changes in interest rate expectations, it has updated its forecast model for Hong Kong banks, lowering the average interest rate forecast for the 2025 fiscal year by about 150 basis points, implying a Federal Reserve rate of 3.25% in the third quarter of 2025. Market expectations for BOC HONG KONG (02388) are quite conservative, limiting further downside potential for the stock; given its high sensitivity and weak asset growth, HANG SENG BANK's performance may be weaker. Fulai believes that market consensus on BOC HONG KONG is already conservative enough. The second quarter's net interest margin is resilient compared to market expectations, coupled with strict controls and ongoing regional deployment, providing opportunities for cost control, loan growth, etc. to exceed expectations. HANG SENG BANK's net interest income for the first half of the year fell by 9% year-on-year. If the net interest margin continues to slow down, the year-on-year decline in net interest income in the second half of the year may widen. The bank believes that the pressure on net interests margin next year will only increase, and therefore, its forecast for earnings per share and dividend per share for the Hang Seng 2025 fiscal year is 7% to 8% lower than market expectations.

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