UBS: Raises BOC HONG KONG (02388) target price to HK$43.5, maintains "neutral" rating.

UBS released a research report stating that BOC HONG KONG (02388) recorded a 4.9% year-on-year increase in net profit to HK$34.121 billion for the full year of last year, exceeding the bank's and market expectations. This was mainly driven by strong growth in net interest income and net interest margin. Operating profit in the fourth quarter increased by 5%, benefiting from a 13.8% increase in revenue and a 15.8% increase in pre-provision profit. Impairment provisions increased by 80.3% year-on-year, largely in line with expectations, reflecting increased provisions for Chinese commercial real estate customers. It is estimated that the credit cost in the fourth quarter reached 73 basis points. The full-year dividend per share was HK$2.125, with a payout ratio of 56%, in line with expectations. UBS raised its earnings forecast for BOC HONG KONG for 2026 by 4%, with the target price raised from HK$40 to HK$43.5, maintaining a "neutral" rating. The bank stated that revenue in the fourth quarter increased by 13.8% year-on-year, primarily driven by a 7.3% increase in net interest income and growth in other non-interest income. However, net fee income declined by 10.6% year-on-year due to weak capital market activity. Net interest income growth benefited from a 6.4% increase in average interest-earning assets and a rebound in net interest margin to 1.71%, expanding by 17 basis points on a quarterly basis. Loans increased by 2.3% year-on-year, with loans used in Hong Kong growing by 3.7% and loans used outside of Hong Kong decreasing by 0.9%. Deposits increased by 7.9% year-on-year, with demand and savings deposits increasing by 24.3% and time deposits decreasing by 6.2%. The ratio of demand and savings deposits increased by 0.4 percentage points to 53.4% on a quarterly basis.