CICC: Maintains HSBC HOLDINGS (00005) Outperform Rating Target Price of HK$111.9

CICC released a research report stating that considering the slowing growth in non-interest income of HSBC HOLDINGS (00005), the company has lowered its 2025E operating income forecast by 1.3% to 67.2 billion US dollars, and its attributable net profit forecast for ordinary shareholders by 3.7% to 21.1 billion US dollars; considering the resilience of net interest margin, the company has raised its 2026E operating income forecast by 4.0% to 71.7 billion US dollars, and its attributable net profit forecast for ordinary shareholders by 11.2% to 27.1 billion US dollars. The company is trading at 1.4x/1.3x 2025E/2026E P/B. Considering profit forecasts and market sentiment changes, the bank maintains its target price for the company at 111.9 Hong Kong dollars, corresponding to 1.4x/1.3x 2025E/2026E P/B and a 5% upside potential, and maintains an outperform industry rating. Key points from CICC: Better-than-expected performance in 3Q25 HSBC HOLDINGS reported its 3Q25 performance. The company's adjusted revenue in 3Q25 was 17.9 billion US dollars, a year-on-year increase of 4%; basis-adjusted net profit increased by 1% year-on-year to 6.2 billion US dollars, exceeding the bank's and market expectations, primarily due to better-than-expected net interest income and wealth management income. Better-than-expected net interest income is the main reason for the better-than-expected performance The Banking NII of the bank in 3Q25 increased by 3% quarter-on-quarter and 2% year-on-year, better than expected, mainly driven by rapid deposit growth leading to an increase in interest-earning assets, with average interest-earning assets increasing by 6% year-on-year. In terms of pricing, the banking NII in 3Q25 rose by 2bp quarter-on-quarter to 1.98%, mainly due to the rapid rebound in HIBOR since early August, with the average HIBOR level in 3Q25 higher than that in 2Q25. The company has raised its 2025 Banking NII guidance from the previous "around 42 billion US dollars" to "43 billion US dollars or even better". Looking forward, net interest income is affected by multiple factors, including changes in Hibor (which has risen rapidly from below 1% since August to around 3.5% currently), deposit growth (up 5% year-on-year in 3Q25 and 1% quarter-on-quarter), increase in the CASA deposit ratio (64% in 3Q25, up 3ppt from 1Q25), Fed rate cuts (Dot plot indicates 2 rate cuts in 2025, 2-4 rate cuts in 2026, every 100 bp decrease in rates corresponds to a 3 billion US dollar decrease in net interest income for HSBC), structural hedging (scale has increased to 585 billion US dollars, with a yield of around 3%). 8% year-on-year growth in non-interest income in 3Q25 The growth rate of non-interest income has slowed down compared to the previous 20%+, but it still maintains a relatively strong growth. The slowdown in growth is mainly due to a 4% year-on-year decrease in corporate transaction banking fee income, with the highest proportion in foreign exchange business, which declined by 11% year-on-year in the context of a slowdown in financial market volatility; in addition, securities services revenue increased by 15% year-on-year, mainly due to the good performance of capital markets in Asia and the Middle East, while global trade and payment business increased by 1% and 2% year-on-year. Wealth management business income remains strong, with positive outlook Wealth management income in 3Q25 increased by 29% year-on-year. From the end of 2022 to the middle of 2025, HSBC Hong Kong's wealth management client base increased by 21%, with two-thirds being non-local retail customers, focusing on deposits and insurance. Wealth management income in 3Q25 remained strong, with fund distribution income increasing by 39% year-on-year, and insurance business income maintaining a strong growth of 46% year-on-year; the growth in assets under management (AUM) comes from both new client accounts and superior returns from capital market investments. Effective cost control for the company Operating expenses increased by 3.5% year-on-year to 8.4 billion US dollars in 3Q25, totaling 24.6 billion US dollars in the first three quarters of 2025, a year-on-year increase of 3%; the growth rate is slightly slower than the revenue growth rate (4%), in line with the company's expectation of around 3% cost growth for the full year. The company stated that it has saved 1 billion US dollars in costs through operational simplification since the beginning of the year, and is expected to further save 400 million US dollars in the fourth quarter of 2025, but seasonal costs may increase quarter-on-quarter. Impairment provisions in line with expectations, stable credit costs The company set aside provisions of 0.1 billion US dollars in 3Q25, an increase of 2% year-on-year and a decrease of 5% quarter-on-quarter; credit costs were 41bp, a decrease of 0.3bp year-on-year and 3.1bp quarter-on-quarter, in line with market expectations and the company's guidance of around 40bp credit cost center; the company stated at the earnings conference that the Hong Kong commercial real estate market has stabilised and improved, with the bank's exposure to commercial real estate in Hong Kong accounting for only about 4% of total loans, and the bank believes that the asset quality of its relevant exposures is under control. 2025 ROTE guidance raised, suspension of buybacks in line with expectations The company has raised its 2025 ROTE guidance to "over 15%", mainly due to net interest income and wealth management income. The ROTE guidance for 2026-27 is temporarily maintained at around 15%, and the bank also expects to exceed 15%. Dividend per share in 3Q25 was 0.10, flat year-on-year and quarter-on-quarter, in line with expectations. The suspension of buybacks is in line with expectations, as the bank had announced a suspension of buybacks in the last three quarters after the acquisition of HANG SENG BANK. The bank has not disclosed any more details about the acquisition of Hang Seng until the transaction is completed, but reiterated that the acquisition aligns with its strategic development direction, is beneficial for scale effects, will not drag down internal growth, and can create more value compared to buybacks. Overall shareholder return remains strong As of the market close on October 28, 2025, HSBC's stock price corresponds to a dividend yield of approximately 5.5% for 4Q25-3Q26; considering the suspension of buybacks for three quarters and assuming a resumption of buybacks of 2-3 billion US dollars in the fourth quarter, the buyback return rate would be 0.9% -1.3%. Overall, the bank predicts that the comprehensive shareholder return rate for the next four quarters will be 6.4% -6.8%. Risk factors: Asset quality risks of Hong Kong commercial real estate and UK retail exposures may exceed expectations, and overseas interest rate declines may be more pronounced than expected.