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<Research>UBS: HSBC HOLDINGS' Earnings Diluted Marginally Due to Holdings in BANKCOMM, But Outlook Unchanged
Recommend 30 Positive 51 Negative 27 |
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CCB (00939.HK), BANK OF CHINA (03988.HK), BANKCOMM (03328.HK), and PSBC (01658.HK) have announced details of capital injections under the government's plan to strengthen the banking sector's capital levels, according to a report from UBS. In a nutshell, around US$71 billion in capital will be injected at 0.67-0.76 times book value, which, as estimated by UBS, will result in a 4-17% dilution in EPS and a rise of 0.5-1.5% in CET1 ratios. With its 19.03% stake in BANKCOMM, HSBC HOLDINGS (00005.HK) is drawing significant attention. Upon a transaction expected to be completed in November, BANKCOMM will receive around US$16.6 billion, marking an 18% premium over the A-share closing price in the previous trading day. Based on 0.67 times book value, it is estimated that EPS will experience a 16% dilution. In UBS's expectation, HSBC HOLDINGS' stake in BANKCOMM will be diluted to 16.06%. As the bank recognized US$2.241 billion in income from BANKCOMM (US$745 million in dividends and US$1.496 billion in retained earnings) in FY24, if the bank's stake is reduced to 16% with other conditions unchanged, its earnings will suffer from a US$350 million drag, equivalent to 1.1% of the market's adjusted profit forecast for FY25. Assuming the associate accounting method will persist, UBS projected that HSBC HOLDINGS' share of book value will fall from around US$25 billion to about US$24 billion, resulting in a smaller non-cash, capital-neutral charge. In the broker's opinion, the likelihood of further impairment is higher as driven by comparisons with revised value in use (VIU), thereby reducing the risk of reaching the VIU ceiling in the foreseeable future. HSBC HOLDINGS stated that such charges will not be included in dividend calculations. Although it is unclear whether this situation will occur upon transaction completion in 4Q25 or due to an early impairment test trigger, it is believed not to affect HSBC HOLDINGS' outlook. UBS gave HSBC (HSBA.UK) listed in London a Neutral rating with a target price of GBX960. AAStocks Financial News |
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