J.P. Morgan: HSBC HOLDINGS (00005) Post-Q3 Results Briefing Leans Neutral to Negative; Maintains "Overweight" Rating and HK$205 Target Price

J.P. Morgan released a research report stating that the key takeaways from HSBC HOLDINGS' (00005) Q3 analyst briefing leaned neutral to negative. Management acknowledged intensified deposit competition in the UK and Hong Kong, with pressure more pronounced in the Hong Kong market. Given that Hong Kong's loan-to-deposit ratio is only 43%, this situation surprised the bank. The bank maintained its "Overweight" rating on HSBC HOLDINGS and a target price of HK$205. The bank noted that management's deposit strategy has shifted, which reduces the reference value of the 2023-2024 Hong Kong time deposit share having peaked at approximately 40%; in Q3 2026, this ratio was 38%. This implies the time deposit share could rise further, and the bank's net interest income forecasts face downside risk. Management also reminded the market of the impact from business disposals, with about half of the US$2.2 billion revenue loss expected to be reflected in net interest income by 2028. Cost reallocation is expected to generate incremental revenue exceeding the aforementioned revenue loss, but with a time lag. On the positive side, management indicated that the FY2026 credit cost guidance of 45 basis points may have downside; the annualized credit cost for the first nine months was 42 basis points, versus a full-year market expectation of 44 basis points. The bank stated that following the results announcement, HSBC HOLDINGS' share price fell about 6% on the afternoon of October 27, while the Hang Seng Index fell 1% over the same period. Based on current valuations, even assuming a mid-single-digit percentage downward revision to market expectations, the 2027 expected dividend yield and total shareholder return (dividends plus buybacks) remain at approximately 5.2% and 8.2%, respectively. However, J.P. Morgan expects HSBC HOLDINGS' share price to trade sideways in the near term, as the market may not rush to bottom-fish before the 2027 growth outlook becomes clearer or the dividend yield shows a clear gap versus the approximately 5.1% average 2027 expected dividend yield of the four major state-owned banks' H-shares.