Overview

HSBC Holdings (0005.HK) is one of the world's largest banking and financial services institutions. HSBC's business spans all over the world, including 62 countries and regions. As of the end of 2023, HSBC's assets reached $3 trillion (US dollars, same below) and it had approximately 42 million customers. The company provides wealth management and personal banking services, industrial and commercial banking services, and global banking and capital markets services.

Q3 Performance review

Q3 revenue growth is strong and core business performance is satisfactory.

Revenue in the third quarter of 2024 was $17 billion with a year-on-year increase of 5%, and revenue in the first nine months of 2024 was $54.3 billion with a year-on-year increase of 2%. The main reason for the increase in Q3 revenue was the growth in customer activity in the wealth management products of the Wealth Management and Personal Banking business and the foreign exchange, stock and global debt market businesses of the Global Banking and Capital Markets business. Revenue for the third quarter of 2024 already included a loss of $300 million due to early redemptions of existing securities, as well as a loss of $100 million resulting from the repositioning and risk management of the treasury business. Profit after tax was $24.4 billion, an increase of $100 million compared with the first nine months of 2023. Diluted earnings per share was $1.22 with a year-on-year increase of 7%.

Both customer lending balances and customer accounts increased.

Customer lending balances increased by $30bn compared with 2Q24. On a constant currency basis, lending balances increased by $2bn, including growth in WPB and CMB, notably in HSBC UK. Customer accounts were $1.7 trillion which increased by $67bn compared with 2Q24. On a constant currency basis, customer accounts increased by $20bn, mainly in HSBC's legal entity in Hong Kong due to an increase in term deposits prior to interest rate reductions and from short-term inflows into customer accounts amid equity market volatility. In CMB, the increase in customer accounts of $6bn reflected balance growth in HSBC's main legal entities in the US and Hong Kong. Deposits in GBM were broadly stable.

Net interest margin fell year-on-year, reflecting the impact of interest rate hikes.

Q3 net interest income was $7.6 billion with a year-on-year decrease of 17%; the net interest margin was 1.46%, a decrease of 24 basis points compared with the third quarter of 2023. Net interest income in the first nine months of 2024 was $24.5 billion with a year-on-year decrease of 11%; the net interest margin was 1.57%, a decrease of 13 basis points compared with the first nine months of 2023. The main reasons for the decrease in net interest margin were the increase in debt interest expenses due to interest rate hike, as well as the increase in the balance of deposits and loans of industrial and commercial customers that were put into the trading accounts. As the Federal Reserve began its interest rate cut cycle, the group's debt interest expenses are expected to decrease gradually.

Investment Thesis

HSBC Holdings will continue to maintain its leading international position, and the group's goal is still to target a mid-teens return on average tangible equity (`RoTE`) in 2024 and 2025 and to manage group's CET1 capital ratio within medium-term target range of 14% to 14.5%. In addition, the group actively rewards investors and sets the target dividend payout ratio in 2024 at 50%. In 2024, the Chinese government released a series of policies to promote economic growth, which drove an increase in customer activities and had a significant impact on Hong Kong's wealth management, stocks and global foreign exchange businesses. It is expected that more favorable policies will be launched in the future, and HSBC Holdings is expected to benefit from them. We predict that the group's operating income will be $67.1 billion, $68.7 billion and $69.1 billion respectively in 2024-2026 with a compound annual growth rate of 4%. EPS will be 1.22/1.29/1.31 US dollars/share, corresponding to the P/E of 7.85x/7.45x/7.29x. The group's average P/E in the past three years is 8.5x, giving the group a P/E of 8.5 times in 2024, with a target price of HK$80.68, and our investment rating is" Accumulate". (Current price as of December 6)

Risk factors

Overseas macroeconomic affects the company's asset quality, interest rate risk, and credit risk.

Financial

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