Citibank: HSBC Holdings (00005) posted tax-excluded profits in the last quarter that exceeded expectations. The increased target is expected to lead to positive revaluation.

The report released by Citigroup stated that the rating for HSBC HOLDINGS (00005) is "buy" with a target price of 143.3 Hong Kong dollars. For the fourth quarter of fiscal year 2025, HSBC's underlying profit before tax (excluding significant items) was $8.6 billion, exceeding market consensus by 9%. Revenue was 3% higher than expected, costs were in line with expectations, and impairment losses were 12% better than expected. The better-than-expected revenue was mainly driven by higher net interest income from banking operations (6% higher), while non-interest income was roughly in line with expectations (1% lower). Due to lower losses from the sale of a French mortgage portfolio than previously guided, reported underlying profit before tax was $7.8 billion, significantly higher than market consensus by 18%. The common equity Tier 1 capital ratio was 14.9%, increasing by 40 basis points quarterly and exceeding market consensus by 20 basis points, even after accounting for a dividend of $0.45 per share (7% higher than consensus). If calculated on a pro forma basis after the privatization of HANG SENG BANK, this ratio would decrease to 13.8%. The Group currently estimates that the transaction will bring about $500 million in incremental synergy effects (while Citigroup believes the market's assumption of limited synergy effects). The Group has raised its target, now expecting a tangible return on equity of 17% or higher for fiscal years 2026 to 2028 (market consensus is 16.6% to 17%). Overall, this is a positive performance report, with reassuring strategic updates providing useful new information on HSBC and an upward revision of the target, which is expected to drive positive revaluation.