Citigroup released a research report stating that STANCHART (02888) posted a second-quarter pre-tax profit of US$2.3 billion, which was 13% higher than market expectations. Revenue also exceeded forecasts by 3%, driven primarily by wealth management (16% above expectations), banking (6% above), and transaction services (3% above), partially offset by slightly weaker-than-expected performance in markets and treasury operations. Operating expenses were 2% lower than anticipated, while loan impairments were 37% below estimates.

The common equity Tier 1 (CET1) ratio stood at 14.2%, up 80 basis points quarter-on-quarter and 50 basis points above market expectations. Citigroup maintains a "Neutral/High Risk" rating on STANCHART, with a target price of HK$223.

Citigroup highlighted that STANCHART's wealth management business once again delivered an impressive performance. Wealth solutions revenue increased by 43% year-on-year on a constant currency basis, with investment products surging 56% and bancassurance revenue growing 9%. Net new money inflows into wealth management reached US$15 billion, while assets under management for affluent clients rose 7% quarter-on-quarter.

The bank noted that STANCHART's fiscal 2026 revenue target was slightly raised, though the increase was below Citigroup's expectations, with other targets remaining unchanged. Management now expects revenue growth to fall within the mid-range of 5% to 7%, with net interest income guidance upgraded from flat to low single-digit growth. Loan impairment range remains between 30 and 35 basis points, while statutory return on equity is maintained above 12%.

Citigroup believes that the outperformance in costs and impairment provisions may not be sustainable. The former was driven by one-off factors, while the latter must be weighed against rising early warning indicators. However, the beat in non-net interest income, driven solely by the wealth management business, is sufficient to drive low single-digit upgrades to market earnings per share forecasts. The bank views this as a positive signal for HSBC HOLDINGS (00005) as well.