Bank of China Hong Kong (Holdings) Ltd (BOCHK) is a 66.1%-owned subsidiary of Bank of China Ltd which is listed on the Hong Kong Exchange. Presently, Bank of China Hong Kong is a leading commercial banking group in Hong Kong that provides a wide range of financial solutions to retail, commercial, and institutional customers. As of 4 August 2019, it is valued at HK$ 307.7 billion in market capitalisation. 

In this article, I’ll cover on its latest financial results and valuation figures. Thus, here are 10 things to know about BOCHK before you invest:


  • Interest Bearing Assets
    BOCHK has achieved a CAGR of 9.7% for its total interest-bearing assets for the past 10 years. It has increased from HK$ 1.06 billion in 2009 to a total of HK$ 2.43 billion in 2018. This is attributable to consistent rise in key assets such as loans & advances, debt securities investments and as well as balances & placements to banks and other financial institutions.



Key Interest-Bearing Assets
2009(HK$ Bil)2018
(HK$ Bil)
CAGR (%)Average Yield2018 (%)
Loans & Advances473.91,219.411.1%2.85%
Debt Securities330.2783.110.1%2.39%
Balances & Placements241.9414.96.2%1.90%
Other Interest-Bearing Assets12.717.63.6%2.13%
Total 1,058.82,435.09.7%2.54%


Figures of above assets are ‘Average Balances’ respectively.

Source: BOCHK’s Annual Reports



Source: BOCHK’s Annual Reports


  • Net Interest Income
    It had contributed to a CAGR of 9.1% in net interest income in 10 years, up from HK$ 17.9 billion in 2009 to HK$ 39.4 billion in 2018.



Source: BOCHK’s Annual Reports


  • Fees & Commission Income
    BOCHK increased its fees and commission income from HK$ 8.54 billion in 2009 to HK$ 15.57 billion in 2015. This is mainly attributed to growth in credit card business, securities brokerage and loan commissions. The commercial bank subsequently has maintained its fees and commission income at HK$ 15 billion per year. It is because BOCHK has achieved flat growth in its key incomes stated above.


Key Fees & Commission Income

2009(HK$ Mil)

2018
(HK$ Mil)

CAGR (%)
Proportion to Total Fees & Commission Income (%)
Credit Card Business1,5113,4419.6%22.2%
Loan Commissions9222,61312.3%16.8%
Other Incomes*6,1039,4595.0%61.0%
Total 8,53615,5136.9%100.0%


Notes:
– Securities Brokerages figures were first reported in 2011.

– Other incomes include income from insurance, fund distribution, bills commissions, payment services, trust and custody services, FOREX and safe deposit box.



Source: BOCHK’s Annual Reports


  • Financial Results
    Thus, BOCHK has achieved a CAGR of 8.5% in net operating income, up from HK$ 26.1 billion in 2009 to HK$ 54.4 billion in 2018. In that period, it reduced its cost-to-income ratio from 46.6% in 2009 to 27.9% in 2018 and hence, contributed to higher shareholders’ earnings from HK$ 13.9 billion in 2009 to HK$ 32.0 billion in 2018. The 10-Year Return on Equity (ROE) Average of BOCHK is 12.85% per year. It means, BOCHK has made on average HK$ 12.85 in earnings per year from each HK$ 100.00 it had in shareholders’ equity from 2009 to 2018.



Source: BOCHK’s Annual Reports


  • Balance Sheet Strength
    As of 31 December 2018, BOCHK has recorded the following:

Financial Strength RatioTotal CapitalRatioNet Stable Funding Ratio Liquidity Coverage RatioProvision Coverage Ratio
Figures in %23.1%124%160.2%227.1%



Hence, BOCHK is well-capitalised and has adequate resources prepared to face acute liquidity challenges and absorb loan losses if both arise in the future. In addition, BOCHK was granted the following credit ratings, which indicated its financial strength:


Credit AgenciesStandard & Poors’Moody’sFitch
Long-TermA+Aa3A
OutlookStableNegativeStable


Source: Credit Ratings of BOCHK


  • Growth Area 1: Greater Bay Area (GBA)  
    BOCHK has identified GBA as its key growth area. GBA offers BOCHK 10 times more in both accessible retail and corporate market as compared to the Hong Kong market. It intends to capitalise on growing demand in travel (GBA-Hong Kong), real estate market at Pearl River Delta Area, an increase in both corporate and financial services by offering:

    – BOC Dual Currency Card
    – Remote Account Opening + Mainland Payment Service Providers
    – BOCPay Mobile Payment
    – BOCBill Integrated Payment Collection Service

– Remittance Fee Exemptions
– Direct Remittance of RMB Salary
– Launched GBA Personal Loan in May 2019
– A wide range of life, travel, and personal accident insurance products

– Established a Virtual Bank in Hong Kong
– and a wide range of Fintech Investments. 

  • Growth Area 2: Southeast Asia
    BOCHK built a market presence in nine countries across Southeast Asia, with Singapore as the only exception. BOCHK had fully assumed its role to manage its businesses to support the Belt and Road Initiatives across the region.


  • P/E Ratio
    As of 4 August 2019, BOCHK is trading at HK$ 29.10 per share. In 2018, it has made HK$ 3.027 in earnings per share (EPS). Hence, BOCHK’s P/E Ratio is 9.61 currently, which is below its 10-Year Average of 12.54.


  • P/B Ratio
    In 2018, BOCHK has reported to have HK$ 24.31 in net assets per share and thus, having a current P/B Ratio of 1.20, below its 10-Year Average of 1.61.


  • Dividend Yields
    In 2018, BOCHK has paid out HK$ 1.468 in dividends per share (DPS). It is a continuous rise from HK$ 0.855 in 2009. Thus, BOCHK offers 5.04% per year in dividend yields based on today’s stock price of HK$ 29.10. It is above its 10-Year Average of 4.62% per annum.



Source: BOCHK’s Annual Reports



VIA’s Verdict 

Overall, BOCHK had delivered consistent growth in operating income, earnings, and dividend payments to its existing shareholders. It has also maintained solid balance sheet strength and thus, positioning itself to benefit from potentials of GBA, Southeast Asia, and Fintech in the coming years. Thus, its stock prices had risen consistently, lifting its market capitalisation from HK$ 186.9 billion in 2009 to as much as HK$ 307.7 billion in 2018. 

Source: Google Finance

Presently, its stock price is trading at below its long-term valuation averages. It offers above average in dividend yields. Thus, the question is: 

‘Will you invest in BOC Hong Kong (Holdings) Ltd at HK$ 29.10 today?’

Please leave your comments below: 

LEAVE A REPLY

Please enter your comment!
Please enter your name here