Morgan Stanley has issued a research report maintaining an "underweight" rating on BOC HONG KONG (02388) while lifting its target price from HK$39.9 to HK$44.2. The upward revision reflects stronger balance sheet growth assumptions, with earnings per share forecasts for 2026, 2027, and 2028 raised by 1.5%, 4.4%, and 5%, respectively. The bank sees more attractive risk-reward opportunities in HSBC Holdings (00005) and Standard Chartered (02888) within the sector.
According to the brokerage, BOC HONG KONG's current share price already factors in its valuation metrics, trading at 12.8 times 2026 projected earnings, 1.42 times book value, with an 11.4% cash return on equity and a 4.4% dividend yield (plus an anticipated 1% share buyback). This suggests the stock is not cheap at prevailing levels.
Morgan Stanley anticipates the bank's first-half after-tax and pre-tax profits will remain broadly flat year-on-year, though sequential declines could materialize due to softer non-interest and non-fee income streams. Operating trends present a mixed picture: bancassurance and net interest margins are under pressure, but loan growth and other fee income should help offset these headwinds. Credit risks tied to Hong Kong's commercial real estate sector remain manageable, while management is set to unveil its 2026-2028 shareholder return framework alongside interim results, which the bank expects to provide share price support.
Market attention is squarely focused on the capital return initiative, with expectations that management will detail the plan during the interim earnings announcement. Potential measures include lifting the ordinary dividend payout ratio toward the upper end of the 40%-60% range, issuing special dividends, and executing share buybacks. Morgan Stanley projects an interim ordinary dividend of HK$0.58 per share, but contends that the pivotal factor is not the quarterly payout itself, but rather the pace at which management chooses to deploy excess capital and whether the announced plan proves sufficient to reshape the bank's medium-term return profile.