Standard Chartered: Raise target price for HSBC HOLDINGS (00005) to HK$113.7, expecting dividend yield to exceed 5% in the next year and the following year.

DBS Bank released a research report stating that HSBC HOLDINGS (00005) proposed privatizing HANG SENG BANK (00011) at HK$155 per share last Thursday (9th), with a transaction valuation of USD 13.7 billion. This move is in line with HSBC's strategy to deepen its business in Hong Kong, expected to generate long-term revenue and cost synergies. DBS believes that this move will have minimal impact on HSBC's earnings per share, and stock buybacks will be suspended in the next three quarters. The "buy" rating on HSBC is reiterated, with a target price raised from HK$98.7 to HK$113.7, implying a 1.18 times price-to-book ratio for the fiscal year 2026. DBS also believes that HSBC will provide a dividend yield of over 5% in fiscal years 2026 and 2027, with expected dividends per share of HK$5.31, HK$5.56, and HK$5.94 for the respective years, and dividend yields of 5.1%, 5.3%, and 5.7%. The bank stated that the assumptions for HSBC's earnings per share for fiscal years 2026 to 2027 remain largely unchanged. It is expected that HSBC will continue to achieve strong growth in wealth management fee income in fiscal years 2025 to 2027, making wealth management a key growth driver during the interest rate cutting cycle, partially offset by the weakness in net interest income (NII). In terms of asset quality, DBS assumes that HSBC will maintain credit costs at around 40 basis points, as uncertainty remains in the exposure of Hong Kong commercial real estate. DBS also pointed out that due to the positive earnings outlook for fiscal years 2025 to 2027, HSBC's return on tangible equity (ROTE, excluding significant items) is expected to be 15% to 16% during this period. However, HSBC's suspension of stock buybacks in the next three quarters may lead to short-term price volatility. Nevertheless, DBS expects this transaction to create value in the long term, as non-controlling interests will be added back and synergies between the two entities will be realized. It is expected that the stock will continue to provide a dividend yield of over 5%. The bank anticipates that the high visibility of HSBC's ROTE will support further potential for revaluation.