HSBC (ADR: HBC, Hong Kong stock code 0005) is up 1.5% to HK$87.50, tracking London-traded shares and ADRs, after reporting its 1Q13 underlying pretax profit rose 34% on-year to US$7.59 billion, partly as the bank’s restructuring plan gains traction, also due to a 44% fall in loan impairments. Still, some brokers say the revenue figures were disappointing
CLSA says that contrary to the headlines, HSBC’s 1Q13 did not double PBT on-year because of cost cutting. It doubled because of relatively favorable debt-value adjustment and one-off gains; stripping these out operating profit was flat on-year, with HSBC reliant yet again on trading gains and low credit charges to compensate for weak core revenues: net interest income down 11% on-year and net fee income down 2% on-year. “The outlook is lacklustre and we continue to view HSBC as fairly-priced,” CLSA says and keeps HSBC at Underperform. HSBC is up 1.5% at HK$87.50 but comes off an intraday peak of HK$88.20, only a tad below its 52-week high of HK$88.45.
After adjusting for elements included within HSBC’s definition of underlying but which both ourselves and other market participants exclude, UBS thinks 1Q revenues were US$800mn, below the house’s estimate at US$16.5bn. It said this is somewhat disappointing given 1Q is typically seasonally strong and shows little pick up on the US$16bn underlying quarterly run-rate in 2H 2012. Overall costs of US$9.35bn were some US$400m lower than the house anticipated. The net effect of the lower revenues and lower costs meant that the CIR was broadly in line with expectations at 51% (53.2% underlying). UBS upgraded its 2013 estimate by 6% on the impairment reduction. It maintained its “neutral” call and price target of 750p (HK$90.11).
Goldman Sachs said HSBC reported 1Q underlying PBT was US$7.6bn, above GS’s etimate of US$7.24bn. The house maintained its “buy” rating and a target price of HK$93, implying 1.22X 2013 BVPS and 11.1X 2013E EPS and 4.4% dividend yield. It thinks risk-reward remains attractive. Goldman added that USD margin compression pressure driven by increasing competition from European/Japanese banks and excess liquidity, as well as HSBC’s market share gain, should have negative impact on Asian banks focusing on USD lending (both short-term transaction banking & mid/long-term asset-backed loan/project financing).
Credit Suisse said HSBC’s 1Q PBT of US$7.4 bn (on a clean underlying basis) came in 5% ahead of CS’s estimates led by lower opex and credit costs. Revenue growth outlook for 2013 seems a bit weak with management backing away from the 7-8% revenue growth target for 2013 given during the 2012 results. This is likely to lead to some revenue downgrades, given that consensus is expecting ~5% growth on an underlying basis. The Basel-3 fully loaded capital ratio came in at 10.1%, slightly lower than 10.3% at YE2012, but this was impacted by the final dividend. Credit Suisse maintained its “outperform” call and HK$100.48 target on HSBC.
JP Morgan estimated HSBC’s clean pre-tax at US$8bn for 1Q, 21% above the research house’s forecast of US$6.6bn. Despite noise from one-offs, the underlying message is clear: in an environment in which revenues are challenged, the bank continues to find levers from falling costs and improving asset quality, the research house said. On the expense side, the group noted another US$400m of run-rate cost savings, boosting the annualized benefit to US$4bn, with cost/income at 51% in 1Q. On the provision side, the group saw lower impairments across Europe (GBM), UK (Retail), MENA, and the US (runoff book). Overall, JPM noted that 1Q provisions were just US$1.2bn versu consensus forecasts of US$7.3bn for the full year, which should drive upgrades going forward. With management continuing to execute on costs, and improved profitability a tailwind for future returns (and dividends), The house remains “overweight” on HSBC, with an unchanged target price of HK$96.
Macquarie said HSBC reported strong earnings beat, with US$8.4bn pre-tax profit, comparing to market expectations of US$8.1bn reported pre-tax profit and US$6.7bn by adjusting for Industrial Bank, fair value of own debt and further notable items. It noted that HSBC achieved another US$0.4bn of additional sustainable cost savings during 1Q which highlights the good progress in restructuring the business. Revenue trends look disappointing in Commercial Banking and Retail Banking while Global Banking & Markets performed well, Macquarie noted. The research house said many investors are worried about asset quality for Standard Chartered (02888) but the read-across from HSBC is clearly positive. The market is already discounting for a miss in the double-digit topline growth target and StanChart has higher gearing to Investment Banking & Markets relative to HSBC. The house maintained its “outperform” on HSBC with a target price of HK$94.