1、 Employed by a non-US affiliate of MLPF but slight rise in core earnings BoCHKs 2009 bottom line earnings came in at HK$13.7bn (+311% YoY); +5% ahead of our above consensus estimates. We were encouraged by the solid momentum across several businesses in 2H09. However, the primary driver of the beat
2、was the larger than expected investment securities write back in 4Q09. Excluding the impact of these write backs, Lehman mini-bond related costs, and gains on investment props, we estimate underlying PBT grew +1% YoY in 2009. Pros significant impairment write backs on US ABS; strong and higher under
3、lying expense growth as new investment but lower at bottom line We have made a number of changes to our 2010-12E earnings assumptions, with the net impact being a slight upgrade to core earnings (+2-4% for 2010-11E). However, given earlier than expected write backs of impairment provisions on the US
4、 RMBS portfolio in 2H09, we have scaled back our write back expectations for 2010-12E, resulting in a slight drop at the bottom line (down 1-3%). Reiterate Buy rating gross new impairment provisioning was running at just 0.09% of average loans in 2H (vs 0.07% in 1H). While we are forecasting a net c
5、harge of just 15-20bps of average loans over the next 2-3yrs, we note that this is significantly below historic levels. 2. Early write back on US RMBS impairment allowance was a surprise BoCHK took advantage of the strong recovery in global credit markets to divest a substantial portion of its remai
6、ning US ABS investment portfolio during the fourth quarter. Write back of impairment provisions taken against the US RMBS book amounted to HK$2.2bn in 4Q09, following a reversal of HK$173mn in 3Q09. Gross carrying value of US RMBS reduced by 65% QoQ to HK$3.8bn, where net carrying value reduced by 5
7、2% to HK$3.3bn. Table 4: BoCHK - US RMBS exposure HK$ mn, Total exposure 2008 1Q09 2Q09 3Q09 4Q09 Sub-prime 1,047 900 812 699 547 Alt-A 2,334 2,000 1,709 828 384 Prime 15,935 14,400 12,339 9,253 2,853 Total carrying value 19,316 17,300 14,860 10,780 3,784 Coverage Impairment charge/(reversal) 9,170
8、1,064 104 -173 -2,181 Impairment allowance 8,120 na 7,931 3,894 469 Coverage on total exposure 42% na 53% 36% 12% Coverage on impaired exposure 67% na 68% 46% 24% Source: Company, BofA Merrill Lynch Global Research analysis 3. Stronger fee income due to brokerage, loan commissions, modestly inflated
9、 NIM Other (1,257) 1,340 940 -29.8% -174.8% Higher than expected insurance benefits expect net charge of 15-20bps on avg loans over the next 2-3 years. Operating profit 16,094 14,737 13,811 -6.3% -14.2% Gain/(loss) from asset sales 45 25 44 76.0% -2.2% Provisions on HTM securities (12,068) 675 2,862
10、 324.0% -123.7% Driven by property revaluation gain (HK$1.6bn), and write-back of impairment provisions on Chart 6: BoCHK led domestic loan growth +5.5%+4.7%-3.4%-7.4%+6.3% +6.3%+5.1%+18.8%-10.0%-5.0%+0.0%+5.0%+10.0%+15.0%+20.0%+25.0%Retail - HoH Retail - YoY Corp - HoH Corp - YoYHK Bank Sector BoCH
11、KSource: Company reports, BofA Merrill Lynch Global Research estimates Better than expected NIM performance in 2H09, helped by a contribution from a currency swap. Resurgence in investment spend and new initiatives drove underlying operating costs 15% higher in 2009 (excludes impact of Lehman). CR B
12、ank of China (Hong Kong) 24 March 2010 7Table 5: BoCHK financials review FY09 Dec-31 (HK$mn) 2008 2009E 2009A Act/ Fcast YoY % Chg Comment 2 - Neutral stocks are expected to remain flat or increase in value and are less attractive than Buy rated stocks and 3 - Underperform stocks are the least attra
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