not vested
STANDARD CHARTERED PLC (2888 HK) | BUY
STRONG 2Q20 RESULTS
• Better income and costs; lower provisions
• Positive surprise in capital position
• 2H20 momentum is the key
Standard Chartered Bank (SCB) reported a strong beat in 2Q20 results with underlying profit before tax ex-debt valuation adjustment came in at US$934mn, which was considerably ahead of consensus estimate of US$310mn.
The beat was driven by higher fee and trading income, lower costs, lower impairments and better capital positions.
Looking ahead, revenue growth in 2H20 should be lower on both h/h and y/y basis owing to a likely less buoyant capital market and net interest margin pressure will continue to weight on net interest income.
Costs are expected to be below US$10bn in FY20e and FY21e.
While there are uncertainties in impairment charges in 2H20, it should lower than 1H unless macro conditions deteriorate materially.
Despite that banks continue to face pressure in light of downward HIBOR pressure and deteriorating macro conditions, we prefer SCB to HSBC (5 HK) owing to lower sensitivity to USD and HKD rates, and a relatively more attractive valuation.
We fine-tune our Fair Value estimate to HK$56 by setting it at -1s.d. to historical average of 0.5x 21e P/B.
Key downside risk would be whether the impact of Covid-19 would last longer-than-expected which will lead to a material deterioration in 2H20e.
Source: OCBC