China / Hong Kong Industry Focus HK Banking Sector

ed-TH / sa-CS / AH

ROE into expansion cycle • An extension for LIBOR cessation to June 2023

should ease market concern

• Expect NIM to rebound in 2H21F driven by

strong credit demand, better asset allocation

and improving investment yield

• ROE expansion to be stronger than expected

supported by robust earnings rebound and

sufficient capital, providing valuation re-rating

• Reiterate BUY on HSB (11 HK) and BOCHK (2388

HK)

Impact from LIBOR discontinuation should be manageable.

The SOFR, based on transactions in the US Treasury

repurchase, will replace LIBOR by the end of 2021. As of

3Q20, 30%/10% of HK banks’ FX assets/liabilities and

HK$31.6tr worth of derivatives contracts were based on

LIBOR, and 40%/60% of assets and liabilities/derivatives

contracts will expire after 2021. However, we think the

transition should be manageable as 1) most of LIBOR might

be extended till June 2023, 2) HK banks will stop issuing new

LIBOR-linked products by June 2021, and 3) the HKMA has

no plans to cease HIBOR at this moment. Under our

coverage, DSB has the highest exposure with its ratio of

interest rate swap contracts out of total assets at 17%,

followed by HSB (10%), BEA (7%), and BOCHK (3%). Expect NIM to rebound in 2H21F. CASA ratio is highly

correlated with HIBOR movements, at -0.85. With HIBOR

trending close to 0%, CASA was up 12ppts y-o-y to 62% in

FY20, and we expect the ratio to rise further in 1H21F which

would marginally benefit HK banks’ funding costs. HIBOR

should start to rebound in 2H21 when business activities

signal a better recovery ahead and the Fed starts to reduce

its balance sheet. We expect NIM to recover in 2H21F and

rebound strongly in FY22F, helped by robust credit demand,

better asset allocation and improving investment yield. Earnings are expected to rebound and drive ROE

expansion. With improving investment demand, we expect

loans to grow 5%/6% y-o-y in FY21/22F. Fee income remains

the bright spot, driven by brokerage fee and retail

investment funds. Provisions are expected to be lower y-o-y

on easing pressure from adjustments in ECL assumptions.

With better outlook, we revised up HK banks earnings with

growth at 12-16% in FY21F and 10-13% in FY22F, higher

than consensus forecast. This should support valuation to

rerate from c. -1STD below five-year avg to its five-year avg

PB multiple. We reiterate our BUY on HSB and BOCHK as

they are the key beneficiaries of rising interest rates and the

upcoming WMC which should contribute higher fee income.

HSI: 28,942

ANALYST

Cindy WANG +852 36684175 [email protected]

Ken SHIH +852 36684184 [email protected]

Ben Wong [email protected]

Recommendation & valuation

Closing Target FY21F

Bank Ticker Rating price Price PB Yield ROE

(HKD) (HKD) (X) (%) (%)

BOCHK 2388 HK BUY 27.1 31.0 0.9 5.3 10.3

HSB 11 HK BUY 151.2 173.0 1.5 4.1 9.7

BEA 23 HK HOLD 16.7 17.5 0.5 2.7 3.5

DSB 2356 HK HOLD 8.6 9.4 0.4 4.0 5.6

Source: Thomson Reuters, DBS Bank (Hong Kong) Limited (“DBS HK”)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Ave

rage

BO

CH

K

HSB

BEA

DSB

PB (x)

Current

Peak cycle

Trough cycle

5Y avg

DBS Group Research . Equity

China / Hong Kong Industry Focus

HK Banking Sector

28 Apr 2021

Refer to important disclosures at the end of this report

https://www.dbs.com/insightsdirect/company/TR4295871575







Industry Focus

HK Banking Sector

Impact from LIBOR discontinuation should be

manageable

Target to cease LIBOR by end-2021. The Hong Kong

Monetary Authority (HKMA) and the Treasury Markets

Association (TMA) provided the blueprint to cease the

issuance of new LIBOR-linked products to the end of 2021,

which is in line with the guidance published by the Federal

Reserve Board, Federal Deposit Insurance Corporation and

Office of the Comptroller of the Currency. LIBOR is the

reference interest rate for contracts worth more than

US$200tr, ranging from derivatives, corporate debt,

consumer loans to residential mortgage. In addition,

variations in the spread between LIBOR and other

benchmarks indirectly act as a key indicator of changing

investor sentiment in global financial markets. The Secured

Overnight Funding Rate (SOFR) which is based on

transactions in the US Treasury repurchase, or the repo

market (where banks and investors borrow or lend Treasury

overnight) will replace LIBOR.

LIBOR cannot simply be replaced by SOFR. LIBOR is being

replaced as its computation is based on a group of panel

banks reporting their funding rates and the numbers are

averaged, adjusted and released each day. There has been

a significant decline in transaction data for calculating the

LIBOR since the GFC in 2008 and it has consequently

become more reliant on the expert judgement of the panel

banks. SOFR, on the other hand, relies entirely on the

transaction data and is purely a daily rate, or an overnight

rate, vs LIBOR which has seven varying maturity rates from

one day to one year. Last but not least, SOFR represents a

risk-free rate while LIBOR incorporates a built-in credit-risk

component because it represents the average cost of

borrowing by banks.

Likely to extend the publication of LIBOR rates (except one-

week and two-month maturities) to June 2023 to smoothen

the transition. LIBOR cannot simply be replaced by SOFR as

the two rates are based on different concepts. Regulators

are encouraging banks to include fallback clauses in new

contracts, which outline the differences between the

computation of SOFR and LIBOR. To smooth the transition

process, on 30 Nov 2020, the administrator of LIBOR

announced that it would consult stakeholders on its

intention to cease the publication of the one-week and two-

month USD LIBOR rates immediately following the LIBOR

publication on 31 December 2021, while that for the

remaining LIBOR maturity rates could be extended to 30

June 2023. This would allow most legacy USD LIBOR

contracts to mature before the LIBOR is totally

discontinued.

HKMA has no plans to cease HIBOR for now. As LIBOR is

used extensively in the Hong Kong banking sector, the

benchmark reform will have significant implications on the

operations of HK banks, and the related preparatory work

can be substantial and complicated. In light of this, the

HKMA has been engaging with banks to prepare them for

the transition. In HK, based on HKMA, the HIBOR has been

in place for many years and is widely recognised by market

participants as a credible and reliable benchmark. There are

no plans to discontinue HIBOR although the Hong Kong

Dollar Overnight Index Average (HONIA) has been identified

as an alternative.

HK banks’ 40%/60% of LIBOR-linked assets and

liabilities/derivatives will mature after 2021. According

HKMA’s survey, as of 3Q20, there were HK$4.8tr of assets

and HK$1.4tr of liabilities linked to LIBOR, which

represented 30% and 10% of the banking system’s total

assets and liabilities denominated in foreign currencies

respectively, while HK$31.6tr worth of derivatives contracts

were based on LIBOR. Out of that, 40% of the LIBOR-linked

assets and liabilities, and 60% of the derivatives contracts

will mature after the end of 2021 and do not have adequate

fallback provisions to cater for a scenario of LIBOR

discontinuation.

HK banks under our coverage have 3-17% of assets

exposed to LIBOR-linked contracts. Within our HK bank

coverage, in terms of the absolute amount, HSB has the

highest exposure of HK$172bn for interest rate swap

contracts linked to LIBOR, while BOCHK, BEA, and DSB have

HK$104bn, HK$58bn, and HK$42bn respectively. However,

based on interest rate swap contracts as a percentage of

total assets, DSB has the highest ratio at 17%, following by

HSB (10%), BEA (7%) and BOCHK (3%). Overall, we think the

impact should be manageable, as 1) the administrator of

LIBOR might extend the publication of most of the LIBOR

rates till June 2023 to smoothen the transition, 2) HKMA has

requested HK banks to stop issuing new LIBOR-linked

products that will mature after 2021 by 30 June 2021, and 3)

most of HK banks have started to offer products based on

alternative reference rates (ARRs), included fallback

provisions for new LIBOR contracts, and accelerated the

reduction of reliance on LIBOR.

Industry Focus

HK Banking Sector

Fig 1: HK banks’ exposure to LIBOR-linked contracts

Fig 2: SOFR is closer to the market rate than LIBOR

Source: HKMA, DBS HK; data as of 3Q20 Source: Eikon, DBS HK

Fig 3: HK banks’ exposure to interest rate swap

contracts

Fig 4: Each country is introducing its own alternative

reference rates for short-term lending rates

Source: Company, DBS HK Source: DBS HK

Fig 5: LIBOR transition milestones

Source: HKMA, DBS HK

18.9

2.20.6

12.7

2.60.8

0

10

20

30

40

Derivatives Assets Liabilities

(HK$tr)

Other exposures to LIBOR contracts

Exposures to LIBOR contracts maturing after end-2021

without adequate fall-back

0%

50%

100%

150%

200%

250%

300%

350%

Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

LIBOR 1M SOFR

17%

3%

10%

7%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0

20

40

60

80

100

120

140

160

180

200

DSB BOCHK HSB BEA

Interest rate swap % of total assets (RHS)

HK$bn Country L IBOR R ate New R isk-F ree R ate

United States USD LIBOR SOFR

United Kingdom GBP LIBOR SONIA

Japan TIBOR, JPY LIBOR and

Euroyen TIBOR

TONA

Europe EURIBOR and EUR LIBOR ESTER

Canada CDOR CORRA

Switzerland CHF LIBOR SARON

Australia BBSW RBA Cash Rate (AONIA)

Hong Kong HIBOR HONIA

2021

Q4 Q1 Q2 Q3 Q4

2022

Q1

By 30 Jun 2021 –

• Als should cease to issue new LIBOR-linked products that will mature after 2021

From 1 Jan 2022 –

• Panel banks no longer obligated to make LIBOR submissions

From 1 Jan 2021 –

• Als should be in a position to offer products referencing the ARRs to LIBOR

• Adequate fall-back provisions should be included in all newly issuzed LIBOR contracts that will mature after 2021

Industry Focus

HK Banking Sector

Expect NIM to rebound in 2H21F

Expect CASA ratio to rise further in 1H21F. Following HIBOR

3M trending to 0.23% in February 2021, HK banks’ funding

cost fell further by 5bps to 0.23% during the same period,

as compared to the end of FY20. CASA ratio is highly

correlated with HIBOR movements at -0.85. As the

quantitative easing monetary policy has pushed down

interest rates sharply to almost 0%, depositors prefer to put

their money in CASA for investment opportunities. Thus,

CASA ratio increased to 62% in FY20, from 50% in FY19. As

the central bank is not likely to raise interest rates in the

short run, given the economy is still recovering from the

COVID outbreak, we expect CASA ratio to further increase in

1H21F. This would marginally benefit HK banks’ funding

costs. We see room for BEA and DSB to improve their

deposit structure given their CASA ratios were only 43.7%

and 49.7%, much lower than HSB’s/BOCHK’s 79.6%/66.8%,

and the industry average of 62.4%.

NIM hit the bottom in 4Q20, and is expected to recover

gradually in FY21F. Loan yield is unlikely to reprice as most

loans are based on HIBOR 1M which we expect to trade at

the current level in 1H21, although we may see some

fluctuations due to IPO deals. HIBOR should gradually

rebound in 2H21/FY22F when business activities signal a

better recovery ahead after vaccines are widely

administered. HK banks’ NIM hit its historical low level of

1.18% in 4Q20, hit by a sharp decline in loan yield in 2H20.

We expect NIM to sequentially recovery from 2H21 and

onward, but on an annual basis, NIM is expected to fall

slightly by 4bps y-o-y in FY21F, albeit at a smaller magnitude

than FY20’s 44bps. In FY22F, we estimate HK banks’ NIM to

be up 4bps y-o-y, helped by the anticipation of interest rate

hikes in 2H22.

DSB’s NIM has started to show sequential recovery. DSB’s

NIM started to recover in 4Q20 and was fairly steady q-o-q

in 1Q21, mainly helped by the efforts to control funding

costs and deposit mix. BEA’s NIM was impacted by weaker

loan demand and a falling HIBOR in FY20. However, NIM has

stabilised since December 2020, and the bank expects it to

stay at the current level. HSB’s NIM reached 1.51% and

1.52% in 3Q20 and 4Q20, and was 1.58%/1.52%/1.46% in

October/November/December 2020 respectively. The bank

will take a prudent approach on yield movements and

expects a slight but manageable downward pressure on

NIM. BOCHK’s NIM was fairly steady between 3Q20 and

4Q20. As interest rates remain at a low level, BOCHK plans

to allocate assets to higher-yield loans, and continue to

optimise deposit costs by reducing high-cost deposits,

which would help its NIM to recover sequentially.

Fig 6: Funding costs fell to 0.23% in Feb 2021

Source: CEIC; Bloomberg Finance L.P., DBS HK

Fig 7: Falling HIBOR pushes CASA ratio higher

Source: CEIC, DBS HK

0

1

2

3

4

5

6

De

c-0

3

Feb

-05

Ap

r-0

6

Jun

-07

Au

g-0

8

Oct

-09

De

c-1

0

Feb

-12

Ap

r-1

3

Jun

-14

Au

g-1

5

Oct

-16

De

c-1

7

Feb

-19

Ap

r-2

0

Composite Interest Rate HIBOR 3M

%

0%

10%

20%

30%

40%

50%

60%

70%

0

2

4

6

8

10

12

14

Jul-

96

Jun

-98

Ma

y-0

0

Ap

r-0

2

Ma

r-0

4

Feb

-06

Jan

-08

De

c-0

9

No

v-1

1

Oct

-13

Se

p-1

5

Au

g-1

7

Jul-

19

HIBOR 3M (LHS) CASA ratio

(%)

Industry Focus

HK Banking Sector

Fig 8: CASA ratio increased in 2020

Fig 9: Deposits expected to grow by 4% in FY21F

Source: Company, CEIC, DBS HK Source: Company, DBS HK

Fig 10: Expect loan growth to rebound following

China’s/HK’s economic recovery in FY21/22F

Fig 11: Loan-to-deposit ratio fell in 2020 given sluggish

loan demand

Source: Company, DBS HK Source: CEIC, DBS HK

Fig 12: NIM hit the bottom in 2H20

Fig 13: Expect NIM to recover sequentially in FY21F

Source: Company, DBS HK Source: Company, CEIC, DBS HK

55.1%

64.0%

36.0%40.4%

50.4%

66.8%

79.6%

43.7%49.7%

62.4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

BOCHK HSB BEA DSB Ind

2019 2020

-10%

-5%

0%

5%

10%

15%

20%

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

F

20

22

F


-10%

-5%

0%

5%

10%

15%

20%

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

F

20

22

F


40

50

60

70

80

90

100

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

Jan

-18

Jan

-19

Jan

-20

Jan

-21

HK L/D Overall L/D

(%)

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

2.2%

2.4%

1H

16

2H

16

1H

17

2H

17

1H

18

2H

18

1H

19

2H

19

1H

20

2H

20

BOCHK BEA HK DSB HSB

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

2.2%

2.4%

2.6%

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

F

20

22

F


Industry Focus

HK Banking Sector

Expect credit cost to be lower y-o-y in FY21/22F

Another six months’ extension to October 2021 for relief

measure loans for SMEs. The HKMA together with the

Banking Sector SME Lending Coordination Mechanism

announced in March 2021 that the Pre-approved Principal

Payment Holiday Scheme will be extended by another six

months to October 2021, as some small- and medium-sized

enterprises continue to face cash flow pressure given the

continued COVID-19 outbreak. All principal payments of

loans falling due between May and October 2021 by eligible

corporate customers will be deferred by another six months

(except for repayments of trade loans, which will be

deferred by 90 days). As of January 2021, banks had granted

over 59k cases of loan tenure extension, involving an

aggregate amount of HK$750bn.

BOCHK/HSB have 1.6-1.7% of loan exposure to relief

measures. The scheme which took effect in May 2020 was

extended by six months to April 2021, and the number of

participating corporate customers has dropped to 5,100, or

a 4% participant rate, vs 16% at the beginning. Hence, we

think the participant rate will drop further as business

operations gradually recover from COVID-19. The total

amount of moratorium loans approved by HSB is

HK$124.6bn. As most of the borrowers have repaid, the

remaining outstanding balance of relief loans is HK$16bn.

Moratorium loans account for only 1.7% of HSB’s loans,

while the balance of relief measure loans for BOCHK make

up 1.6% of its total loans, down from 4% in FY20. Thus, we

expect overall credit risks from relief measure loans to be

controllable.

Asset quality for mortgages and credit cards was under

control, while that for corporate loans was under pressure

from rising bankruptcy cases. Although the Centa-City

Leading (CCL) index (based on current contract prices in

Centaline Property Agency transactions) has trended lower

by 7% since its peak in June 2019, mortgage demand

remains resilient with 10% annual growth. Meanwhile, asset

quality for mortgage loans remains benign at 0.04%,

implying that property-related risks are well controlled in HK

even during the COVID-19 outbreak. Credit card charge-off

rate improved further to 2.17% in 4Q20, down 36bps q-o-q,

although the unemployment rate was still at a relatively high

level of 6.3% (vs 6.7% in 4Q20). We believe this was mainly

helped by HK banks’ tightening credit policy for card holders

and increasing loan collections. However, as COVID-19 has

dragged on for a year, the rising number of bankruptcy

cases (up 26% y-o-y in 4Q20), has pushed up the

impairment loan ratio by 7bps q-o-q to 0.82%.

Expect lower credit costs amid improving credit risks in the

market. The asset quality of HK banks’ loan portfolios

showed signs of resilience albeit suffering a modest

deterioration in FY20 amid the pandemic outbreak and

widespread economic downturn. Although the NPL ratio

rose 7bps q-o-q to 0.82% in 4Q20, the ratio of overdue and

rescheduled loans remained relatively stable q-o-q at 0.48%.

With the further extension of relief measure loans to give

corporates a buffer to turn their businesses around, and the

improving macro economy that saw Hong Kong’s retail sales

ending a two-year losing streak in February 2021, surging

30% from last year’s low base, we expect HK banks’ asset

quality to be manageable and NPL ratio to improve

gradually in FY21/22F. In return, the declining credit costs

would serve as earnings upside for FY21/22F.

Fig 14: Mortgage loans maintained solid growth

despite CCL index trending lower

Source: CEIC, DBS HK Fig 15: Default rate for mortgages remained low at

0.04%

Source: CEIC, DBS HK

-5%

0%

5%

10%

15%

20%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Se

p-0

2S

ep

-03

Se

p-0

4S

ep

-05

Se

p-0

6S

ep

-07

Se

p-0

8S

ep

-09

Se

p-1

0S

ep

-11

Se

p-1

2S

ep

-13

Se

p-1

4S

ep

-15

Se

p-1

6S

ep

-17

Se

p-1

8S

ep

-19

Se

p-2

0 CCL index y-o-y Mortgage y-o-y (RHS)

0.0

0.5

1.0

1.5

2.0

De

c-0

0

Ma

y-0

2

Oct

-03

Ma

r-0

5

Au

g-0

6

Jan

-08

Jun

-09

No

v-1

0

Ap

r-1

2

Se

p-1

3

Feb

-15

Jul-

16

De

c-1

7

Ma

y-1

9

Oct

-20

(%)

Residential mortgage: delinquency ratio > 3M

Residential mortgage: delinquency ratio > 6M

Industry Focus

HK Banking Sector

Fig 16: Credit card loans’ credit risk well controlled

Fig 17: Expect asset quality to improve in FY21/22F

Source: CEIC, DBS HK Source: Company, CEIC, DBS HK

Fig 18: Impaired loan ratio rising given more

bankruptcies declared in 2020

Fig 19: Credit cost peaked out in FY20 and is expected

to be lower in FY21/22F

Source: CEIC, DBS HK Source: Company, CEIC, DBS HK

0

2

4

6

8

10

12

14

16

De

c-0

1

Ap

r-0

3

Au

g-0

4

De

c-0

5

Ap

r-0

7

Au

g-0

8

De

c-0

9

Ap

r-1

1

Au

g-1

2

De

c-1

3

Ap

r-1

5

Au

g-1

6

De

c-1

7

Ap

r-1

9

Au

g-2

0

Unemployment rate

Credit card charge-off rate

%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

F

20

22

F


0

1,000

2,000

3,000

4,000

5,000

6,000

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Ma

r-0

7

Ap

r-0

8

Ma

y-0

9

Jun

-10

Jul-

11

Au

g-1

2

Se

p-1

3

Oct

-14

No

v-1

5

De

c-1

6

Jan

-18

Feb

-19

Ma

r-2

0

Impaired loan (Gross) Bankruptcy made (RHS)

% units

-0.2%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

F

20

22

F

BOCHK HSB BEA DSB

Industry Focus

HK Banking Sector

Expect earnings to rebound by double digits in FY21/22F.

HK banks’ earnings dropped 12-33% y-o-y in FY20, impacted

by interest rates which have fallen significantly since 2Q20

and higher provisions amid a weakening economy and

deteriorating asset quality. However, with the vaccinations

being rolled out widely since 1Q21 and the economy’s

gradual recovery stimulating investment and financing

demand, we expect HK banks’ loans to grow 5%/6% y-o-y in

FY21/22F. Fee income remains the bright spot supported by

strong fees from securities brokerages and retail investment

funds which perform well amid higher stock market

transactions. Provisions are expected to be lower y-o-y on

easing provisioning pressure from adjustments in ECL

assumptions and improving asset quality. All in, we expect

HK banks to enjoy solid earnings rebound of 12-16% in

FY21F and 10-13% in FY22F, higher than consensus

forecast. HK banks’ capital levels are sufficient at CET1/CAR

of 16.7%/20.7% respectively. Thus, we do not see any

imminent demand for HK banks to raise capital while the

dividend payout ratio should be maintained or exceed

FY20’s level. Thus, we expect ROE expansion in FY21/22F

driven by earnings improvement.

Fig 20: Strong capital level in FY20

Source: Company, CEIC, DBS HK

Fig 21: Net profit is expected to resume positive

growth in FY21F

Source: Company, DBS HK

Fig 22: Expect ROE to improve in FY21/22F

Source: Company, CEIC, DBS HK

0%

5%

10%

15%

20%

25%


CET1 Tier1 Tier 2

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

F

20

22

F

BOCHK HSB BEA DSB

0

5

10

15

20

25

30

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

F

20

22

F

BOCHK HSB BEA DSB

%

Industry Focus

HK Banking Sector

Strong earnings rebound and ROE expansion to drive

valuation re-rating. With the anticipation of interest rate

hikes in the long run following US 10-year bond yield

rebound, HK banks’ stock prices have risen 9-15% YTD

(except BEA’s +1%), and the trading P/BV multiple has

recovered to -1SD below its five-year average from the

historical low level. We believe the share price drivers for HK

banks would come from NIM’s sequential recovery,

improving asset quality trend, and/or increasing fee income

contribution from strong asset and wealth management

demand to drive earnings upside opportunities. With

positive earnings growth in FY21/22F and ROE expansion,

we see the current trading P/BV multiple of -1SD below its

five-year average as undemanding.

Reiterate BUY on HSB and BOCHK. With the rollout of

COVID-19 vaccines, HK’s economy is set to recover. HSB

targets to grow fee income from wealth management

services and credit card transactions, and commercial

lending from specific sectors, such as infrastructure,

healthcare and education, etc. We expect HSB to deliver

earnings growth of 8.8%/13.5% y-o-y in FY21/22F, thanks to

higher lending demand and sequential NIM improvement,

solid fee income growth from increasing investment

demand, and easing provisioning pressure from

adjustments in ECL model. We maintain our target price of

HK$173 based on the Gordon Growth Model (17% ROE, 3%

growth, 11% cost of equity), implying 1.8x FY21F P/BV, or its

five-year average P/BV.

BOCHK expects its FY21F loan growth momentum to remain

at a high single digit helped by improving economic outlook,

and growth opportunities in both SEA and GBA. NIM will still

stay relatively low given the low interest rate environment,

slightly offset by improving funding costs from increasing

CASA and lowering high-cost deposits. Asset quality is

manageable and continues to be better than peers. We

raise BOCHK’s FY21/22F earnings forecasts by 2%/1%,

driven by reduction in provisions to offset a falling NII from a

lower NIM. We keep our target price at HK$31, based on the

Gordon Growth Model (12% ROE, 3.5% growth and 12%

cost of equity). Our TP implies 1.2x FY21F P/BV, or its five-

year P/BV average. We reiterate our BUY call on BOCHK.

Our FY21F earnings forecast for DSB is largely unchanged

while we raise our FY22F earnings by 2%, driven by better-

than-expected NIM trend, fee income upside from

increasing investments, and falling provisions from

economic recovery. We raise our target price for DSB to

HK$9.4 from HK$7.8, based on the Gordon Growth Model

(8% ROE vs 7% previously, 2% growth and 16% cost of

equity), implying 0.4x FY21F P/BV, or -1SD below its five-year

average. The share price has risen 9% YTD following the end

of the interest rate downcycle. However, due to the lack of

near-term catalysts, we see the stock price being range

bound. Reiterate HOLD.

We raised BEA’s FY21/22F earnings forecasts by 64%/58%

following its strong 2H20 performance which was helped by

lowering opex. BEA’s impairment loss ratio in HK increased

50bps y-o-y to 0.75% in FY20 as most of the impairments

were COVID-19 related. BEA does not expect any significant

impairments in HK in FY21F and credit costs should be

manageable. On the other hand, its asset quality in China

showed improvement in FY20 but NPL ratio was down to

3.1% in 2H20, vs 3.9% in 1H20. BEA expects consistent

improvement in credit cost and NPL ratio in China in FY21.

BEA has announced its intention to sell its BEA Life shares to

AIA and will distribute AIA’s life and long-term savings

products on an exclusive bases to its retail customers under

a 15-year cooperation framework agreement inked in March

2021. The deal is worth HK$5,070m and BEA is expected to

book a profit of HK$1bn in respect of the asset disposal,

while the payment for exclusive distribution agreement will

be amortised over 15 years. We expect BEA to pay a special

dividend as its capital level is sufficient with 16.5%/21.9% of

CET1/CAR. We raise our target price for BEA to HK$17.5,

from HK$16.2 previously, based on the Gordon Growth

Model (6.5% ROE vs 6% previously, 2% growth and 11% cost

of equity), implying 0.4x FY21F P/BV. Maintain HOLD.

Fig 23: HK banks’ share price performance YTD

Source: Bloomberg Finance L.P., DBS HK

15.1

11.8

9.4

0.8

0 5 10 15 20

BOCHK

HSB

DSB

BEA

%

Industry Focus

HK Banking Sector

Fig 24: HK banks’ valuation has rebounded to -1SD

below its five-year average

Fig 25: HK banks’ P/BV vs ROE

Source: Bloomberg Finance L.P., DBS HK Source: Bloomberg Finance L.P., DBS HK

Fig 26: BOCHK P/BV band

Fig 27: BEA P/BV band


Fig 28: HSB P/BV band

Fig 29: DSB P/BV band


0.5

0.7

0.9

1.1

1.3

1.5

1.7

2015

2016

2017

2018

2019

2020

PB (x)

- 1 SD

- 2 SD

5 yr avg

+1 SD

+2 SD

BEA DSB

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

0% 5% 10% 15%

PB (x)

Average Return of Equity in FY21F

BOCHK

HSB

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

20

15

20

16

20

17

20

18

20

19

20

20

PB (x)

- 1 SD

- 2 SD

5 yr avg

+1 SD

+2 SD

0.2

0.4

0.6

0.8

1.0

1.2

1.4

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

PB (x)

- 1 SD

- 2 SD

5 yr avg

+1 SD

+2 SD

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

PB (x)

- 1 SD

- 2 SD

5 yr avg

+1 SD

+2 SD

0.2

0.4

0.6

0.8

1.0

1.2

1.4

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

PB (x)

- 1 SD

- 2 SD

5 yr avg

+1 SD

+2 SD

ed-TH / sa- CS /AH

BUYLast Traded Price (27 Apr 2021): HK$27.10 (HSI : 28,942) Price Target 12-mth: HK$31.00 (14% upside)

Analyst




What’s New • Expect FY21F NIM to sequentially recover from 2H20 low

base, helped by improving deposit costs and better asset

allocation

• Loans maintain growth momentum at a high single digit

in FY21F

• Moratorium loans reduced to 1.6% of total loans, credit

risk seen to be under control

• Reiterate BUY and TP of HK$31

Price Relative

Forecasts and Valuation

FY Dec (HK$ m) 2019A 2020A 2021F 2022FPre-prov. Profit 41,777 38,127 42,099 46,193 Pre-prov. Profit Gth

(%)

6 (9) 10 10 Pretax Profit 40,088 33,583 39,003 43,355 Net Profit 32,184 26,487 30,607 34,175EPS (HK$) 3.04 2.51 2.89 3.23EPS Gth (%) 1 (18) 16 12PE (X) 8.9 10.8 9.4 8.4 DPS (HK$) 1.54 1.24 1.44 1.60 Div Yield (%) 5.7 4.6 5.3 5.9 BV Per Share (HK$) 26.37 27.46 28.92 30.55 P/Book Value (x) 1.0 1.0 0.9 0.9ROAE (%) 12.0 9.3 10.3 10.9ROAE (ex-exceptional (%) 11.9 9.9 10.3 10.9 ROA (%) 1.14 0.90 0.95 0.99

Earnings Rev (%) 2 1Consensus EPS (HK$) 2.65 2.95 Other Broker Recs: B:12 S:0 H:3

Source of all data on this page: Company, DBS Bank (Hong Kong) Limited (“DBS HK”), Thomson Reuters

All-round improvement ahead

Investment Thesis Stabilising NIM with solid demand for financing. Given HIBOR

has been trading close to 0%, we see minimum downward

NIM pressure for BOCHK, while loan growth remains intact at

a 9% CAGR in FY20-22F.

Better asset quality than peers. As BOCHK has higher

bargaining power to select good-quality borrowers, we

expect its NPL ratio to continue to be better than peers’.

Benefitting from strong presence in GBA and ASEAN. With its

broad branch network leveraging on its parent company

BOC, BOCHK has a strong position in GBA and ASEAN which

serves as the next revenue engine.

Valuation:

We maintain our target price at HK$31, based on the

Gordon Growth Model (12% ROE, 3.5% growth and 12%

cost of equity). Our TP implies 1.2x FY21F P/BV, or its five-

year P/BV average, supported by ROE expansion.

Where we differ:

Our FY21/22F earnings forecasts are 7% higher than

consensus, as we expect BOCHK to enjoy earnings growth

of 16%/12% y-o-y respectively, helped by its strong loan

CAGR of 9%, solid fee income and its focus on better-quality

borrowers to ease provisioning pressure. Its solid position

in GBA and SEA should serve as a revenue growth engine.

Key Risks to Our View:

Weaker-than-expected HIBOR movement, worse-than-

expected asset quality, weak synergies from its acquisitions

in ASEAN and GBA expansion.

At A Glance

Issued Capital (m shrs) 10,573

Mkt Cap (HK$m/US$m) 286,528 / 36,915

Major Shareholders (%)

Bank of China Ltd 66.1

Free Float (%) 33.9

3m Avg. Daily Val. (US$m) 54.22

GICS Industry: Financials / Banks

55

75

95

115

135

155

175

195

215

18.3

23.3

28.3

33.3

38.3

43.3

Apr-17 Apr-18 Apr-19 Apr-20 Apr-21

Relative IndexHK$

Bank of China Hong Kong (LHS) Relative HSI (RHS)

DBS Group Research . Equity 28 Apr 2021

China / Hong Kong Company Update

Bank of China Hong Kong Bloomberg: 2388 HK EQUITY | Reuters: 2388.HK


Company Update

Bank of China Hong Kong

WHAT’S NEW

Expect FY21F earnings recovery from robust financing demand, strong fee income and benign asset quality

Expect NIM to remain relatively low in FY21. 2H20 profit

before tax made up 96%/95% of our/consensus estimates,

mainly due to one-off net loss from fair value adjustments

on investment properties. 2H20 earnings was down 24% y-o-

y, mainly impacted by NIM pressure amid lower interest

rates. NIM was down 25bps h-o-h and 42bps y-o-y to 1.16%

in 2H20. Non-interest income was up 11% y-o-y in 2H20,

mainly helped by strong securities brokerage (+96%) to

offset the decline in insurance (-41%), loan commissions (-

12%) and credit card (-30%). BOCHK expects its FY21F loan

growth momentum to remain at a high single digit helped by

improving economic outlook, and growth opportunities in

both SEA and GBA to drive cross-border financing demand.

NIM will still stay relatively low in FY21F given the low interest

rate environment, slightly offset by improving funding costs

from increasing CASA and trimming down of high-cost

deposits. We expect BOCHK’s FY21/22 loan growth to be

8.3%/9% y-o-y, vs 6.3% in FY20, and FY21/22F NIM to be

1.19%/1.23%, gradually recovering from 1.16% in 2H20 but

still below 1.27% in FY20.

Asset quality remains manageable. BOCHK’s impaired loan

ratio rose 2bps h-o-h to 0.27% in 2H20, still performing

better than the market average of 0.82%. As some small-

and medium-sized enterprises continue to face cash flow

pressure given the continued COVID-19 outbreak, the

HKMA together with the Banking Sector SME Lending

Coordination Mechanism announced in March 2021 that

the Pre-approved Principal Payment Holiday Scheme will be

extended by another six months to October 2021. The

balance of relief measure loans for BOCHK make up only

1.6% of its total loans, down from 4% in FY20. Thus we

opine that the credit risk from moratorium loans is

controllable and expect impairment loan ratio to be

0.27%/0.22% in FY21/22F.

Reiterate BUY. We raise our FY21/22F earnings forecasts for

BOCHK by 2%/1%, driven by reduction in provisions to offset

a falling NII from a lower NIM. Our FY21/22F earnings

forecasts are 7% higher than consensus, as we expect

BOCHK to enjoy earnings growth of 16%/12% y-o-y

respectively, helped by its strong loan CAGR of 9%, solid fee

income and its focus on better-quality borrowers to ease

provisioning pressure. Its solid position in GBA and SEA

should serve as a revenue growth engine. We keep our

target price at HK$31, based on the Gordon Growth Model

(12% ROE, 3.5% growth and 12% cost of equity). Our TP

implies 1.2x FY21F P/BV, or its five-year P/BV average,

supported by its ROE expansion. We reiterate our BUY call

on BOCHK.

Company Background

BOCHK is the second-largest commercial bank in Hong

Kong by total assets and commands a strong market share

in all major businesses. It is an indirectly owned subsidiary

of Bank of China Limited (BOC). BOCHK is one of the three

note-issuing banks in Hong Kong and is the People’s Bank

of China’s (PBOC) appointed clearing bank for Renminbi

(RMB) businesses in HK.

Historical PE and PB band

Forward PE band (x) PB band (x)

Source: Thomson Reuters, DBS HK

Avg: 10.8x

+1sd: 12.8x

+2sd: 14.8x

-1sd: 8.8x

-2sd: 6.8x6.0

8.0

10.0

12.0

14.0

16.0


(x)

Avg: 1.26x

+1sd: 1.59x

+2sd: 1.92x

-1sd: 0.93x

-2sd: 0.6x0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1


(x)

Company Update


Key Assumptions

FY Dec 2018A 2019A 2020A 2021F 2022F

NIM (%) 1.62 1.59 1.28 1.20 1.25

Loan growth (%) 11 10 7 8 9

Cost-to-income (%) 28 29 30 30 30

Credit cost (%) 0.1 0.1 0.2 0.2 0.1

Customer Deposits Growth (%)

Growth (%) 7 6 9 8 8

Yld. On Earnings Assets (%) 2.36 2.42 1.69 1.75 1.83

Avg Cost Of Funds (%) 1.10 1.29 0.66 0.67 0.72


Income Statement (HK$ m)

FY Dec 2018A 2019A 2020A 2021F 2022F Net Interest Income 39,394 40,523 34,738 38,492 42,598

Non-Interest Income 15,017 17,921 19,736 21,752 23,632

Operating Income 54,411 58,444 54,474 60,244 66,230

Operating Expenses (15,180) (16,667) (16,347) (18,145) (20,036)

Pre-provision Profit 39,231 41,777 38,127 42,099 46,193

Provisions (1,237) (2,022) (2,707) (2,913) (2,620)

Associates 70 52 (152) (182) (219)

Exceptionals 924 281 (1,685) 0 0

Pre-tax Profit 38,988 40,088 33,583 39,003 43,355

Taxation (6,404) (6,014) (5,115) (6,241) (6,937)

Minority Interests (584) (500) (605) (780) (867)

Preference Dividend 0 (1,390) (1,376) (1,376) (1,376)

Net Profit 32,000 32,184 26,487 30,607 34,175

Net Profit bef Except 31,076 31,903 28,172 30,607 34,175

Growth (%)

Net Interest Income Gth 13.50 2.87 (14.28) 10.81 10.67

Net Profit Gth 12.36 0.57 (17.70) 15.55 11.66

Margins, Costs & Efficiency (%)

Spread 1.25 1.13 1.03 1.08 1.12

Net Interest Margin 1.50 1.45 1.17 1.20 1.25

Cost-to-Income Ratio 27.9 28.5 30.0 30.1 30.3

Business Mix (%)

Net Int. Inc / Opg Inc. 72.4 69.3 63.8 63.9 64.3

Non-Int. Inc / Opg inc. 27.6 30.7 36.2 36.1 35.7

Fee Inc / Opg Income 20.8 18.7 19.9 20.2 20.1

Oth Non-Int Inc/Opg Inc 6.8 12.0 16.3 15.9 15.6

Profitability (%)

ROAE Pre Ex. 12.4 11.9 9.9 10.3 10.9

ROAE 12.8 12.0 9.3 10.3 10.9

ROA Pre Ex. 1.1 1.1 0.9 1.0 1.0

ROA 1.2 1.1 0.9 1.0 1.0


Company Update


Balance Sheet (HK$ m)

FY Dec 2018A 2019A 2020A 2021F 2022F

Cash/Bank Balance 587,824 530,669 653,261 705,522 761,964

Government Securities 0 0 0 0 0

Inter Bank Assets 0 0 0 0 0

Total Net Loans & Advs. 1,282,477 1,412,961 1,500,416 1,623,121 1,767,653

Investment 899,176 886,846 940,699 973,135 1,006,965

Associates 483 1,632 1,485 1,303 1,084

Fixed Assets 69,114 71,712 65,296 65,296 65,296

Goodwill 0 0 0 0 0

Other Assets 113,834 122,236 159,824 183,890 198,470

Total Assets 2,952,908 3,026,056 3,320,981 3,552,266 3,801,432

Customer Deposits 1,893,357 2,009,273 2,183,709 2,358,406 2,547,078

Inter Bank Deposits 376,807 267,889 326,495 342,820 359,961

Debts/Borrowings 22,699 13,070 426 439 452

Others 375,133 428,332 490,696 514,734 539,973

Minorities 4,361 5,233 5,877 6,657 7,524

Shareholders' Funds 280,546 302,259 313,778 329,211 346,444

Total Liab& S/H’s Funds 2,952,903 3,026,056 3,320,981 3,552,266 3,801,432


Financial Stability Measures (%)

FY Dec 2018A 2019A 2020A 2021F 2022F

Balance Sheet Structure

Loan-to-Deposit Ratio 68.0 70.7 69.1 69.3 69.9

Net Loans / Total Assets 43.4 46.7 45.2 45.7 46.5

Investment / Total Assets 30.5 29.3 28.3 27.4 26.5

Cust . Dep./Int. Bear. Liab. 93.6 95.3 94.5 90.4 90.8

Interbank Dep / Int. Bear. 18.6 12.7 14.1 13.1 12.8

Asset Quality

NPL / Total Gross Loans 0.2 0.2 0.3 0.3 0.2

NPL / Total Assets 0.1 0.1 0.1 0.1 0.1

Loan Loss Reserve Coverage 0.0 0.0 0.0 0.0 0.0

Provision Charge-Off Rate 0.1 0.1 0.2 0.2 0.1

Capital Strength

Total CAR 23.1 22.9 22.1 21.8 21.6

Tier-1 CAR 19.8 19.9 19.7 19.6 19.5


Company Update


Target Price & Ratings History

Source: DBS HK

Analyst: Cindy WANG

Ken SHIH

Ben Wong

1 2

19.0

21.0

23.0

25.0

27.0

29.0

Ap

r-2

0

Ma

y-2

0

Jun

-20

Jul-

20

Au

g-2

0

Se

p-2

0

Oct

-20

No

v-2

0

De

c-2

0

Jan

-21

Feb

-21

Ma

r-2

1

Ma

r-2

1

Ap

r-2

1

HK$ S.No. Date Closing 12-mth Rat ing

Price Target

Price

1: 5-May-20 HK$23.35 HK$30.00 Buy

2: 20-Jan-21 HK$24.60 HK$31.00 Buy

ed-JS/ sa- CS /AH

HOLDLast Traded Price (27 Apr 2021): HK$8.61 (HSI : 28,942) Price Target 12-mth: HK$9.40 (9% upside) (Prev HK$7.80)

Analyst



Ben Wong +852 36684183 [email protected]

What’s New • Strong brokerage fee and trading income was the bright

spot in 2H20

• NIM has recovered to 1.67% since Dec 2020

• Expect to book HK$31m impairment loss on BOCQ

following its A-share listing in Feb 2021

• Raised TP to HK$9.4 on higher earnings estimates;

reiterate HOLD

Price Relative


FY Dec (HK$ m) 2019A 2020A 2021F 2022FPre-prov. Profit 2,538 2,416 2,578 2,808Pre-prov. Profit Gth

(%)

(16) (5) 7 9 Pretax Profit 2,593 1,809 1,967 2,189 Net Profit 2,240 1,493 1,672 1,860 EPS (HK$) 1.63 1.09 1.22 1.35 EPS Gth (%) (10) (33) 12 11PE (X) 5.3 7.9 7.1 6.4DPS (HK$) 0.49 0.31 0.34 0.38 Div Yield (%) 5.7 3.6 4.0 4.4 BV Per Share (HK$) 20.50 21.35 22.23 23.20 P/Book Value (x) 0.4 0.4 0.4 0.4 ROAE (%) 8.2 5.2 5.6 6.0ROAE (ex-exceptional

(%)

9.4 7.3 7.8 8.3ROA (%) 0.95 0.61 0.66 0.70

Earnings Rev (%) (0) 2Consensus EPS (HK$) 1.31 1.49Other Broker Recs: B:3 S:0 H:3


Modest recovery pace

Investment Thesis Modest loan origination growth. Focusing on POEs and mid-

to small-sized companies in HK which are more exposed to

economic cycles, we expect DSB to be more conservative on

its loan approval to control credit risks.

Conservative view on loan quality. Despite expecting the

economy to gradually recover from the pandemic outbreak,

we have taken a conservative view on DSB's asset quality as

its customers face greater challenges during this economic

downturn.

Downside risks factored in. DSB’s 4.1% dividend yield (FY21F)

should provide support to its share price.

Valuation:

We have largely maintained FY21F earnings and raised

FY22F earnings by 2% on better than expected NIM trend,

higher fee income, and lower provisions. We raised DSB’s

target price to HK$9.4 from HK$7.8, based on the Gordon

Growth Model assuming 8% ROE (vs 7% previously), 2%

growth and 16% cost of equity, implying 0.4x FY21F P/BV,

which is -1std of its five-year average. Due to the lack of

near-term catalysts, we expect the stock price to trade in a

tight range. Reiterate HOLD.

Where we differ:

As one of the two remaining sizeable family-owned local

banks, DSB is a candidate for M&A. The Wong family

currently has a 42% stake in DSB. Given that DSB is trading

at only 0.4x FY21F P/BV, we believe there is a low likelihood

for M&A to take place in the near term. The average M&A

multiple for HK local banks is close to 1.6x P/BV.


Slower-than-expected loan expansion; worse-than-expected

asset quality; weaker-than-expected Hong Kong Interbank

Offered Rate (HIBOR).

At A Glance


Mkt Cap (HK$m/US$m) 12,176 / 1,569


Dah Sing Financial Holdings Ltd 74.4

Free Float (%) 25.6



37

57

77

97

117

137

157

177

197

217

5.9

7.9

9.9

11.9

13.9

15.9

17.9

19.9


Relative IndexHK$

Dah Sing Bank (LHS) Relative HSI (RHS)



Dah Sing Bank Bloomberg: 2356 HK EQUITY | Reuters: 2356.HK


Company Update

Dah Sing Bank

WHAT’S NEW

Modest recovery in FY21F

2H20 results in line. DSB’s 2H20 profit before tax was

101%/97% of consensus/our estimates. 2H20 earnings fell

38% y-o-y, mainly impacted by lower interest income and

impairment charges from its investment in BOCQ. FY20

earnings dropped 33% y-o-y to HK$1.49bn. Net interest

income was down 9% y-o-y as the rapid fall in interest rates

led to a substantial drop in net interest margin of 24bps y-

o-y to 1.63% in FY20. Non-interest income was up 18% y-o-

y in FY20 and 14% y-o-y in 2H20, mainly helped by strong

securities brokerage and investment services and trading

income. The group’s impaired loan ratio rose 12bps h-o-h

to 1.14% in 2H20, while provisions declined 23% h-o-h but

was up 6% y-o-y, as a result of higher credit losses on SME

loans and unsecured retail loans, although there was some

signs of stabilization on credit quality towards the end of

the year. Loans was down 0.5% h-o-h to HK$146.8bn and

deposits up 1.4% h-o-h to HK$190bn. Loan to deposit ratio

was 77.1% vs 78.6% in 1H20. Capital level improved by

70bps h-o-h, and CET1/CAR reached 13.8%/17.6%,

respectively at end-FY20. Full year dividend was HK$0.31

(vs HK$0.49 in FY19), on a 28% dividend payout (vs 30% in

FY19).

Cautious view on FY21F. DSB posted NIM of 1.59% in

2H20, supported a recovery of NIM to 1.67% in 4Q20, and

has been stable since then. We believe DSB’s NIM had hit

a bottom in 2H20 and should rebound to 1.68%/1.73% in

FY21/22F thanks to better loan mix supported by lower

funding costs. Fee income could be the bright spot led by

strong stock brokerage fees at the beginning of the year,

however, this could fluctuate with market trading activity.

Trading income might not be as strong as FY20 as HIBOR

and LIBOR gap has narrowed with not much room for

arbitrage. DSB has a more conservative view on asset

quality amid the expiration of relief measure on loans, and

consumer credit quality. BOCQ issued 347m new A-shares

at an issue price of Rmb10.83 per share on 5 Feb 2021.

With the completion of A-share listing, DSB’s interest in

BOCQ is lower at 13.2% from 14.66% in Dec 2020. We

expect an impairment loss of HK$31m to reflect BOCQ’s

lower net asset value per share to be recognised in 1H21.

Reiterate HOLD with TP of HK$9.4. We have largely

maintained FY21F earnings and raised FY22F earnings by 2%

on better than expected NIM trend, higher fee income, and

lower provisions as the economy recovers. We raised DSB’s

target price to HK$9.4 from HK$7.8, based on the Gordon

Growth Model assuming 8% ROE (vs 7% previously), 2%

growth and 16% cost of equity, implying 0.4x FY21F P/BV,

which is -1std of its five-year average. The share price has

risen 9% YTD following the end of interest rate downcycle.

However, due to the lack of near-term catalysts, we see the

stock price trading in a narrow range. Reiterate HOLD.

Company Background

DSB has three banking subsidiaries (Dah Sing Bank, Banco

Commercial de Macau and Dah Sing Bank [China] Limited)

which provide banking and financial services through a

network of around 70 branches. Dah Sing Bank, DSB's

major banking subsidiary, is the strategic investor holding

approximately 15% interest in Bank of Chongqing, which is a

leading city commercial bank in Chongqing.

Company Update

Dah Sing Bank




Avg: 6.9x

+1sd: 8.5x

+2sd: 10x

-1sd: 5.3x

-2sd: 3.8x3.3

4.3

5.3

6.3

7.3

8.3

9.3

10.3


(x)

Avg: 0.66x

+1sd: 0.9x

+2sd: 1.13x

-1sd: 0.43x

-2sd: 0.19x0.1

0.3

0.5

0.7

0.9

1.1

1.3


(x)

Company Update

Dah Sing Bank

Key Assumptions

FY Dec 2018A 2019A 2020A 2021F 2022F

NIM (%) 2.01 1.87 1.63 1.68 1.73

Loan growth (%) 8 6 0 3 3

Cost-to-income (%) 47 53 54 54 54

Credit cost (%) 0.2 0.2 0.4 0.4 0.3


Growth (%) 6 6 4 5 5


Avg Cost Of Funds (%) 1.33 1.70 1.21 1.24 1.29








Provisions (233) (356) (647) (594) (537)

Associates 687 734 645 645 645

Exceptionals (576) (322) (605) (662) (728)

Pre-tax Profit 2,907 2,593 1,809 1,967 2,189

Taxation (428) (353) (316) (295) (328)

Minority Interests 0 0 0 0 0

Preference Dividend 0 0 0 0 0

Net Profit 2,480 2,240 1,493 1,672 1,860


Growth (%)

Net Interest Income Gth 6.97 (2.17) (9.28) 6.22 7.89

Net Profit Gth 13.43 (9.67) (33.34) 12.00 11.24


Spread 1.76 1.56 1.41 1.47 1.51



Business Mix (%)





Profitability (%)

ROAE Pre Ex. 11.7 9.4 7.3 7.8 8.3

ROAE 9.5 8.2 5.2 5.6 6.0

ROA Pre Ex. 1.3 1.1 0.8 0.9 0.9

ROA 1.1 0.9 0.6 0.7 0.7


Company Update

Dah Sing Bank


FY Dec 2018A 2019A 2020A 2021F 2022F



Inter Bank Assets 10,242 5,495 5,356 5,463 5,572

Total Net Loans & Advs. 127,714 135,938 136,326 140,271 144,271

Investment 59,472 67,101 70,875 75,509 80,685

Associates 3,708 3,985 4,383 5,029 5,674

Fixed Assets 3,277 3,151 3,689 3,689 3,689

Goodwill 870 870 772 772 772

Other Assets 8,640 9,224 10,643 12,438 14,229

Total Assets 230,276 243,406 247,306 259,196 271,719

Customer Deposits 172,967 182,629 190,340 199,857 209,850


Debts/Borrowings 5,449 5,510 3,828 3,905 3,983

Others 21,582 24,618 20,282 21,309 22,354

Minorities 15 15 15 15 15


Total Liab& S/H’s Funds 230,276 243,406 247,306 259,196 271,719



FY Dec 2018A 2019A 2020A 2021F 2022F







Asset Quality


NPL / Total Assets 0.4 0.4 0.6 0.6 0.6



Capital Strength

Total CAR 18.1 17.9 17.6 16.8 16.5

Tier-1 CAR 13.7 13.9 14.3 13.6 13.4


Company Update

Dah Sing Bank


Source: DBS HK

Analyst: Cindy WANG

Ken SHIH

Ben Wong

12

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

Ap

r-2

0

Ma

y-2

0

Jun

-20

Jul-

20

Au

g-2

0

Se

p-2

0

Oct

-20

No

v-2

0

De

c-2

0

De

c-2

0

Jan

-21

Feb

-21

Ma

r-2

1

Ap

r-2

1

HK$ S.No. Date Closing 12-mth Rat ing

Price Target

Price

1: 5-May-20 HK$7.21 HK$7.60 Hold

2: 20-Jan-21 HK$8.20 HK$7.80 Hold

ed-JS/ sa- CS /AH

HOLDLast Traded Price (27 Apr 2021): HK$16.74 (HSI : 28,942) Price Target 12-mth: HK$17.50 (5% upside) (Prev HK$16.20)

Analyst




What’s New • Expect NIM to recover in 2H21 driven by loans growth

and lower funding costs

• Credit costs to drop amid less pressure to adjust ECL

assumptions amid a better economic outlook

• Potential special dividend after completion of sale of BEA

Life to AIA

• Raised TP to HK$17.5 on higher earnings estimates;

reiterate HOLD

Price Relative


FY Dec (HK$ m) 2019A 2020A 2021F 2022FPre-prov. Profit 9,793 8,347 8,544 8,819 Pre-prov. Profit Gth

(%)

15 (15) 2 3 Pretax Profit 3,198 3,606 4,478 5,134 Net Profit 2,580 2,822 3,193 3,521EPS (HK$) 0.91 0.98 1.10 1.21EPS Gth (%) (56) 8 12 10PE (X) 18.5 17.1 15.2 13.8 DPS (HK$) 0.47 0.40 0.45 0.50 Div Yield (%) 2.8 2.4 2.7 3.0 BV Per Share (HK$) 38.39 38.82 39.74 40.72 P/Book Value (x) 0.4 0.4 0.4 0.4ROAE (%) 2.5 2.5 2.8 3.0ROAE (ex-exceptional

(%)

2.4 2.5 2.8 3.0 ROA (%) 0.38 0.41 0.45 0.48

Earnings Rev (%) 64 58Consensus EPS (HK$) 1.35 1.59 Other Broker Recs: B:0 S:7 H:3


Anticipating a special dividend

Investment Thesis Asset quality in China on close watch. With strict property controls

and multiple lending risks in China, BEA's asset quality in China is a

key factor to monitor given its high exposure to the consumer

finance and property sectors, which forms 17%/29% of its China

loan book.

Steady interest rates and loan demand recovery. The improving

interest rate environment and increasing loan demand in both HK

and China is positive to BEA's NIM and loan growth outlook.

Earnings recovery trend is intact. We expect BEA's earnings to

rebound by 13%/10% in FY21/22F, helped by loans growth and

less provisioning pressure from an improving macro environment.

Valuation:

We raised BEA’s FY21/22F earnings by 64%/58% following its

strong 2H20 performance due to lower opex. Accordingly, we

raised our target price to HK$17.5 from HK$16.2, based on the

Gordon Growth Model (6.5% ROE (previous 6%), 2% growth and

11% cost of equity), implying 0.4x FY21F P/BV.

Where we differ:

Our FY21/22F earnings is 7%/13% below consensus as we are

cautious on BEA's asset quality in China given its high exposure to

the consumer lending and property sectors. We expect BEA’s loan

growth to recover by 3.1%/4.1% y-o-y in FY21/22F, vs 0.7% in FY20.

Credit costs would come down from less pressure to adjust ECL

assumptions amid a better economic outlook. All in, we project

earnings growth to pick up pace to 13%/10% in FY21/22F, from 9%

in FY20.


Faster-than-expected asset quality improvement especially in

China; HK business growing at a faster pace, ramping up ROE back

to historical levels. An unexpected M&A bid at a high valuation for

the bank could surprise.

At A Glance


Mkt Cap (HK$m/US$m) 48,831 / 6,291


Sumitomo Mitsui Financial Group Inc 17.5

Fundación Bancaria Caixa d'Estalvis i Pensions de

Barcelona (la Caixa) 15.9

Guoco Group Ltd 14.9

Elliott Management Corporation 8.5

Free Float (%) 43.1



38

58

78

98

118

138

158

178

198

218

12.6

17.6

22.6

27.6

32.6

37.6


Relative IndexHK$

Bank of East Asia (LHS) Relative HSI (RHS)



Bank of East Asia Bloomberg: 23 HK EQUITY | Reuters: 0023.HK


Company Update

Bank of East Asia

WHAT’S NEW

Potential special dividend after completion of sale of BEA Life to AIA

Expect NIM to recover in 2H21. BEA’s NIM dropped 22bps

h-o-h to 1.37% in 2H20, mainly impacted by weaker loan

demand and a decline in HIBOR since 2Q20. However, NIM

has stabilised since Dec’20 and is expected to stay at the

current level as HIBOR is trading close to trough levels.

NIM should start to recover in 2H21 when the HK economy

is expected to start to rebound, while the bank will

continue to control cost of funding through increasing the

CASA ratio. There is room for BEA to improve its deposit

structure given its CASA ratio of 43.7% is much lower than

the industry average of 62.4%. We expect BEA’s FY21/22F

NIM to be 1.43%/1.47% in FY21/22F, vs 1.48% in FY20.

Lower credit costs from a better economic outlook. BEA’s

impairment loan ratio in HK increased 50bps y-o-y to

0.75% in FY20 as most of the impairments were corporate

loans which were impacted by COVID-19. BEA does not

expect any significant impairments in HK in FY21F, thus

credit costs should be manageable. On the other hand, its

asset quality in China showed improvement in FY20, with

NPL ratio lower at 3.1% in 2H20, vs 3.9% in 1H20. BEA

expects to see consistent improvements in credit cost and

its NPL ratio in China in FY21. We expect its credit costs to

decline to 0.83%/0.73% in FY21/22F, vs 1.03% in FY20,

driven by less pressure to adjust ECL assumptions amid a

better economic outlook.

Potential special dividend after closure of BEA Life deal

given sufficient capital level. BEA announced its intention to

sell its BEA Life shares to AIA and will distribute AIA’s life

and long-term savings products on an exclusive basis to its

retail customers under a 15-year cooperation framework

agreement inked in March 2021. The deal is worth

HK$5,070m and BEA is expected to book a profit of

HK$1bn in respect of the asset disposal, while the payment

for the exclusive distribution agreement will be amortised

over 15 years. We expect BEA to pay a special dividend as

its capital level is sufficient given that CET1/CAR stand at

16.5%/21.9% as of FY20.

Maintain HOLD. We raised BEA’s FY21/22F earnings by

64%/58% following its strong 2H20 performance aided by

lower opex. Our FY21/22F earnings is 7%/13% below

consensus as we remain cautious on BEA's asset quality in

China given its high exposure to consumer lending and

property sectors. We expect BEA’s FY21F loan growth to

recover by 3.1%/4.1% y-o-y in FY21/22F, vs 0.7% in FY20.

Credit costs should come down from less pressure to

adjust ECL assumptions amid a better economic outlook.

Factoring in these assumptions, we project 13%/10%

earnings growth in FY21/22F, from 9% in FY20. We revised

up our target price for BEA to HK$17.5, from HK$16.2

previously, based on the Gordon Growth Model (6.5% ROE

vs (6% previously), 2% growth and 11% cost of equity),

implying 0.4x FY21F P/BV.

Company Background

Incorporated in 1918, Bank of East Asia (BEA) is one of the

last two family-owned banks left in Hong Kong. BEA was a

first mover into mainland China, through its wholly owned

subsidiary Bank of East Asia (China). As of end-2020, BEA’s

total asset and equity size reached HK$884bn and

HK$113bn respectively.

Company Update

Bank of East Asia




Avg: 20.6x

+1sd: 25x

+2sd: 29.3x

-1sd: 16.3x

-2sd: 12x10.8

15.8

20.8

25.8

30.8

35.8


(x)

Avg: 0.68x

+1sd: 0.9x

+2sd: 1.13x

-1sd: 0.45x

-2sd: 0.23x0.2

0.4

0.6

0.8

1.0

1.2


(x)

Company Update

Bank of East Asia

Key Assumptions

FY Dec 2018A 2019A 2020A 2021F 2022F

NIM (%) 1.73 1.85 1.48 1.43 1.47

Loan growth (%) 6 2 1 3 4

Cost-to-income (%) 50 50 52 51 53

Credit cost (%) 0.3 1.4 1.0 0.8 0.7


Growth (%) 0 0 3 2 2


Avg Cost Of Funds (%) 1.92 2.07 1.38 1.41 1.50








Provisions (1,590) (7,253) (5,090) (4,383) (4,007)

Associates 566 622 310 316 323

Exceptionals 575 36 39 0 0

Pre-tax Profit 8,060 3,198 3,606 4,478 5,134

Taxation (1,506) 138 79 (448) (770)

Minority Interests (45) (76) (71) (45) (51)

Preference Dividend (713) (680) (792) (792) (792)

Net Profit 5,796 2,580 2,822 3,193 3,521


Growth (%)

Net Interest Income Gth 9.53 11.89 (20.34) (5.33) 3.62

Net Profit Gth (33.74) (55.49) 9.38 13.16 10.25


Spread 1.28 1.39 1.11 1.06 1.10



Business Mix (%)





Profitability (%)

ROAE Pre Ex. 5.2 2.4 2.5 2.8 3.0

ROAE 5.8 2.5 2.5 2.8 3.0

ROA Pre Ex. 0.7 0.4 0.4 0.5 0.5

ROA 0.8 0.4 0.4 0.5 0.5


Company Update

Bank of East Asia


FY Dec 2018A 2019A 2020A 2021F 2022F



Inter Bank Assets 60,373 62,280 66,849 70,191 73,701

Total Net Loans & Advs. 498,284 505,336 509,070 525,059 546,384

Investment 158,423 170,480 153,420 156,766 160,193

Associates 9,129 9,970 9,182 9,498 9,821

Fixed Assets 13,165 14,328 14,065 14,206 14,348

Goodwill 1,940 1,926 1,912 1,912 1,912

Other Assets 50,031 49,353 73,545 70,036 54,645

Total Assets 839,451 865,198 884,420 895,747 910,044

Customer Deposits 574,114 573,527 589,202 600,986 613,006


Debts/Borrowings 59,054 77,240 65,909 56,240 47,990

Others 75,218 76,878 84,370 87,360 91,062

Minorities 2,855 368 943 898 847


Total Liab& S/H’s Funds 839,451 865,198 884,420 895,747 910,044



FY Dec 2018A 2019A 2020A 2021F 2022F







Asset Quality


NPL / Total Assets 0.4 0.7 0.7 0.8 0.7



Capital Strength

Total CAR 20.8 20.4 21.9 22.6 23.2

Tier-1 CAR 17.8 18.4 19.4 20.0 20.6


Company Update

Bank of East Asia


Source: DBS HK

Analyst: Cindy WANG

Ken SHIH

Ben Wong

1

2

3

13.0

14.0

15.0

16.0

17.0

18.0

19.0

20.0

Ap

r-2

0

Ma

y-2

0

Jun

-20

Jul-

20

Au

g-2

0

Se

p-2

0

Oct

-20

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v-2

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Feb

-21

Ma

r-2

1

Ma

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HK$ S.No. Date Closing 12- mth Rat ing

Price Target

Price

1: 5-May-20 HK$15.82 HK$16.00 Fully Valued

2: 12-Jun-20 HK$18.74 HK$16.00 Fully Valued

3: 20-Jan-21 HK$17.00 HK$16.20 Hold

Industry Focus

HK Banking Sector

DBS HK recommendations are based on an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return, i.e., > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable share price catalysts within this time frame)

*Share price appreciation + dividends

Completed Date: 28 Apr 2021 12:29:38 (HKT)

Dissemination Date: 28 Apr 2021 17:23:09 (HKT)

Sources for all charts and tables are DBS HK unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by DBS Bank (Hong Kong) Limited (“DBS HK”). This report is solely intended for the clients of DBS Bank Ltd., DBS HK,

DBS Vickers (Hong Kong) Limited (“DBSV HK”), and DBS Vickers Securities (Singapore) Pte Ltd. (“DBSVS”), its respective connected and

associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any

means or (ii) redistributed without the prior written consent of DBS HK.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to

DBS Bank Ltd., DBS HK, DBSV HK, DBSVS, its respective connected and associated corporations, affiliates and their respective directors,

officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any

information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the

research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set

out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any

recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the

particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for

the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no

liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or

reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an

offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of

them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may

effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking

services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and

there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or

risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete

or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS

Group is under no obligation to update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no

planned schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates

and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the

estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary

significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments

described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with

the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and

(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings

or risk assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)

mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating

to the commodity referred to in this report.

DBS Vickers Securities (USA) Inc (“DBSVUSA”), a US-registered broker-dealer, does not have its own investment banking or research

department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking

transaction in the past twelve months and does not engage in market-making.

Industry Focus

HK Banking Sector

ANALYST CERTIFICATION

The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the

companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of

his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The

research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does

not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the

management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the

entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for

the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that

the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in

connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and

independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential

information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's

compensation to any specific investment banking function of the DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates have proprietary positions in BOC Hong Kong Holdings

Ltd (2388 HK), CK Hutchison Holdings Ltd (1 HK) and Bank of East Asia Ltd/The (23 HK) recommended in this report as of 26 Apr

2021.

2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research

Report.

3. DBS Bank Ltd, DBS HK, DBSVS, DBS Vickers Securities (USA) Inc (“DBSVUSA”), or their subsidiaries and/or other affiliates

beneficially own a total of 1% of the issuer's market capitalization of Bank of Chongqing Co Ltd (1963 HK) as of 26 Apr 2021.

4. DBS Bank Ltd, DBS HK, DBSVS, DBSVUSA, their subsidiaries and/or other affiliates beneficially own a total of 5% of any class of

common equity securities of Bank of Chongqing Co Ltd (1963 HK) as of 26 Apr 2021.

5. Compensation for investment banking services:

DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past

12 months for investment banking services from BOC Hong Kong Holdings Ltd (2388 HK), Bank of East Asia Ltd/The (23 HK), Bank

of China Ltd (3988 HK) and Bank of China Ltd (601988 CH) as of 31 Mar 2021.

DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA, within the next 3 months, will receive or

intend to seek compensation for investment banking services from BOC Hong Kong Holdings Ltd (2388 HK), Bank of East Asia

Ltd/The (23 HK), Bank of China Ltd (3988 HK) and Bank of China Ltd (601988 CH) as of 31 Mar 2021.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust

of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another

person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an

issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or

analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme

other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer

or a new listing applicant.

Industry Focus

HK Banking Sector

6. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public

offering of securities for Bank of China Ltd (3988 HK) in the past 12 months, as of 31 Mar 2021.

DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of

securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons

wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any

security discussed in this document should contact DBSVUSA exclusively.

7. Disclosure of previous investment recommendation produced:

DBS Bank Ltd, DBSVS, DBS HK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment

recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12

months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations

published by DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months.

Industry Focus

HK Banking Sector

RESTRICTIONS ON DISTRIBUTION

General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident

of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use

would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBS Bank Ltd, DBSVS or DBSV HK. DBS Bank Ltd holds Australian

Financial Services Licence no. 475946.

DBSVS and DBSV HK are exempted from the requirement to hold an Australian Financial Services Licence under the

Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS Bank Ltd and DBSVS

are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSV HK is regulated by the

Hong Kong Securities and Futures Commission under the laws of Hong Kong, which differ from Australian laws.

Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report is being distributed in Hong Kong by DBS Bank Ltd, DBS Bank (Hong Kong) Limited and DBS Vickers (Hong

Kong) Limited, all of which are registered with or licensed by the Hong Kong Securities and Futures Commission to

carry out the regulated activity of advising on securities. DBS Bank Ltd., Hong Kong Branch is a limited liability

company incorporated in Singapore.

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.

Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received

from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection

with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report

are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their

respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties

related or associated with any of them may have positions in, and may effect transactions in the securities mentioned

herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services

for the subject companies. They may also have received compensation and/or seek to obtain compensation for

broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn

No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated

by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its

respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation

32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an

Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the

contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS

Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd.

United

Kingdom

This report is produced by DBS HK which is regulated by the Hong Kong Monetary Authority

This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd (“DBSVUK”). DBSVUK is

authorised and regulated by the Financial Conduct Authority in the United Kingdom.

In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and

associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated

in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is

directed at persons having professional experience in matters relating to investments. Any investment activity

following from this communication will only be engaged in with such persons. Persons who do not have professional

experience in matters relating to investments should not rely on this communication.

Dubai

International

Financial

Centre

This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at units 608-610, 6th Floor,

Gate Precinct Building 5, PO Box 506538, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates.

DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended

only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

Industry Focus

HK Banking Sector

United Arab

Emirates

This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as

defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for

information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation

or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into

account the particular investment objectives, financial situation, or needs of individual clients. You should contact your

relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular

investment. You should note that the information in this report may be out of date and it is not represented or

warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or

redistributed without our written consent.

United States This report was prepared by DBS HK. DBSVUSA did not participate in its preparation. The research analyst(s) named

on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The

research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a

subject company, public appearances and trading securities held by a research analyst. This report is being distributed

in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to

Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified

persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any

securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other

jurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified,

professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

DBS Bank (Hong Kong) Limited

13 th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong

Tel: (852) 3668-4181, Fax: (852) 2521-1812

Industry Focus

HK Banking Sector

DBS Regional Research Offices

HONG KONG

DBS Bank (Hong Kong) Ltd

Contact: Carol Wu

13th Floor One Island East,

18 Westlands Road, Quarry Bay, Hong Kong

Tel: 852 3668 4181

Fax: 852 2521 1812

e-mail: [email protected]

MALAYSIA

AllianceDBS Research Sdn Bhd

Contact: Wong Ming Tek (128540 U)

19th Floor, Menara Multi-Purpose, Capital Square,

8 Jalan Munshi Abdullah 50100, Kuala Lumpur, Malaysia.

Tel.: 603 2604 3333

Fax: 603 2604 3921


Co. Regn No. 198401015984 (128540-U)

SINGAPORE

DBS Bank Ltd

Contact: Janice Chua

12 Marina Boulevard,

Marina Bay Financial Centre Tower 3

Singapore 018982

Tel: 65 6878 8888


Company Regn. No. 196800306E

INDONESIA

PT DBS Vickers Sekuritas (Indonesia)

Contact: Maynard Priajaya Arif

DBS Bank Tower

Ciputra World 1, 32/F

Jl. Prof. Dr. Satrio Kav. 3-5

Jakarta 12940, Indonesia

Tel: 62 21 3003 4900

Fax: 6221 3003 4943


THAILAND

DBS Vickers Securities (Thailand) Co Ltd

Contact: Chanpen Sirithanarattanakul

989 Siam Piwat Tower Building,

9th, 14th-15th Floor

Rama 1 Road, Pathumwan,

Bangkok Thailand 10330

Tel. 66 2 857 7831

Fax: 66 2 658 1269


Company Regn. No 0105539127012

Securities and Exchange Commission, Thailand

China / Hong Kong Industry Focus HK Banking Sector

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