Morgan Stanley has issued a research report maintaining an "Underweight" rating on BOC Hong Kong (02388) while raising its earnings per share forecasts for 2026 to 2028 by 1.5%, 4.4%, and 5% respectively, reflecting stronger balance sheet growth. The target price has been lifted from HK$39.9 to HK$44.2, with the firm suggesting that better risk-reward opportunities can be found in HSBC Holdings (00005) and Standard Chartered (02888).

The bank believes that BOC Hong Kong's current share price already reflects its valuation, with a 2026 forecast price-to-earnings ratio of 12.8 times, a price-to-book ratio of 1.42 times, a cash return on equity of 11.4%, and a dividend yield of 4.4% (plus a forecast 1% share buyback), making the valuation not inexpensive.

Morgan Stanley expects BOC Hong Kong's first-half net profit after tax and pre-tax profit to remain stable year-on-year, though quarterly results could be impacted by weaker non-interest and non-fee income. Operating trends are mixed, with bancassurance business and net interest margins showing softness, but loan growth and other fee income providing some offset. Hong Kong commercial real estate credit risks remain manageable, and management is expected to unveil details of its 2026-2028 shareholder return plan at the interim results announcement, which is anticipated to support the share price.

The firm notes that market attention is focused on the capital return plan, with expectations that management will disclose details at the interim results. Potential measures include raising the ordinary dividend payout ratio to the upper end of the 40%-60% range, issuing special dividends, and conducting share buybacks. Morgan Stanley forecasts a first-half interim ordinary dividend of HK$0.58 per share, but believes the key issue is not the quarterly dividend itself, but rather how quickly management is willing to deploy excess capital and whether the announced return plan is sufficient to alter the medium-term return landscape.