DBS released a research report stating that it reaffirms the BOCHK (02388) “buy” rating and expects a compound annual profit growth rate of about 4% between 2023 and 2026. The net interest spread is expected to decline year-on-year in the second half of the year. It is expected that the economic prospects of the Mainland and Hong Kong will stabilize, which may support the mid-term growth of their stock prices. However, the target price was lowered from HK$29.7 to HK$26.3, and the profit forecast for this year and next two years was lowered by about 3% and 5%.
According to the report, BOCHK's profit in 2023 increased 26.1% year on year, in line with market expectations. The non-performing loan ratio increased 0.52 percentage points year on year to 1.05% year on year, but it is still below the 1.56% level of the industry average. Looking ahead, considering that the mainland economy and commercial real estate market have yet to fully recover, DBS expects BOCHK's bad loan ratio and loan growth to fluctuate, but it is optimistic that the bank has strong ability to select borrowers and has a high exposure to state-owned housing enterprises, so it believes it will continue to outperform its peers.