not vested
Time To Buy HSBC, Says Morgan Stanley By Shuli Ren
HSBC (5.Hong Kong/HSBC) gained 1.5% in Hong Kong amid heavy buying after long-time bear Morgan Stanley double upgraded this stock from Underweight to Overweight.
Morgan Stanley has been a long-time bear because it is worried HSBC can’t maintain its generous dividend payouts amid sluggish revenue growth. HSBC pays a handsome
5.9% dividend yield.HSBC has a large operation in Hong Kong, whose currency is pegged to the US dollar. Since Donald Trump‘s presidential win, the US government bond yields have been rising, pushing Hong Kong’s interest rates up as well. Steeper yield curves mean banks can make money now!
HSBC has also been cautious with giving out loans, preferring to clean out its balance sheet to top-line growth. Its loan-to-deposit ratio stood at just 69% in the September quarter. However, Asian economies’ growth is picking up again and HSBC is poised to grow its consumer loan book. (See chart)
Analyst Anil Agarwal wrote:
The bank had been focussed on derisking various parts of balance sheet. As a result, underlying growth in RWAs was muted – 6% in the period end 2015 to September 2016. However, this may start changing in 2017 as the bank starts taking some more risk, especially in consumer lending in HK / rest of Asia.
Stock has lagged peers in HK materially over the last few years. Given rate leverage and loan growth pickup, we upgrade to Overweight. MSCI HK banks generated total returns of 82% and 17% from 2011-2016 and 2016 respectively (for HSBC this was 35% and 7%).
We increase 2017/18e EPS by 10-13% in US$ primarily due to a better revenue outlook. We increase our price target by 21% reflecting earnings upgrades and lower steady state capital requirements post G-SIFI buffer reduction.
Morgan Stanley’s 64 Hong Kong dollars price target implies 12 times the bank’s 2018 earnings estimate. HSBC was trading at HK$62.20 this morning, implying little upside.
Source: Barron's Asia
http://blogs.barrons.com/asiastocks/201 ... n-stanley/
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