HSBC Research raises the target price of BANK OF E ASIA to HKD 14.8, last year's earnings missed expectations

HSBC Research published a report indicating that Bank of East Asia (00023.HK) had an earnings per share of HKD 1.22 last year, a year-on-year decrease of 20%, which was 13.8% and 15.9% lower than the bank's and market's forecasts, respectively; the book value per share increased by 3.8%; the dividend fell by 11.6% to HKD 0.61, with the payout ratio increasing from 45% in 2024 to 50%.

The report mentioned that Bank of East Asia announced its financial targets for 2028, which mainly include reducing credit costs to below 60 basis points; doubling the dividend compared to 2025, while targeting a return on equity of 7%; adjusting the loan portfolio to ensure that the non-commercial real estate category accounts for 85%; and expanding investment and insurance income at a compound annual growth rate of over 20% from 2025 to 2028.

The bank believes that while these new targets clearly indicate the strategic direction of Bank of East Asia, they may also foreshadow mediocre performance in 2026 and 2027. Management confirmed that the 2028 target plan does not include share buybacks or special dividends. The bank believes that due to Bank of East Asia's core Tier 1 capital adequacy ratio reaching 24.7%, this may disappoint the market. The bank has lowered its earnings estimates for 2026 and 2027 by 3.5% and 12.4%, respectively, maintaining a "Hold" rating but raising the target price from HKD 14 to HKD 14.8