Comprehensive Analysis of HSBC and Its Competitors

Broker: OCBC Investment Research

Date of Report: 15 November 2024

HSBC: A Financial Powerhouse on the Path to Growth

HSBC, a leading international financial services group headquartered in the UK, maintains a strong presence in both the UK and Asia. With a robust capital position, HSBC offers sustainable and relatively high dividends, positioning itself as an attractive choice for investors. The bank is strategically redeploying capital towards high-growth areas in Asia, despite potential exposures to economic slowdowns.

HSBC’s investment thesis is supported by its performance in non-banking net interest income (NII), which has exceeded consensus estimates by 19% due to significant growth in Wholesale Transaction banking and Wealth Management revenues. The bank’s new organizational structure, effective from January 2025, aims to streamline operations and enhance strategic focus by operating along four key business lines: Hong Kong, UK, Corporate & Institutional Banking (CIB), and International Wealth & Premier Banking (IWPB).

The bank is on track to achieve its mid-teens return on tangible equity (ROTE) target, supported by strong revenue momentum and a solid capital position. HSBC remains a preferred choice among HK international banks from a total shareholder return perspective, with a fair value estimate of GBp867.18.

Standard Chartered: Navigating Through Economic Challenges

Standard Chartered PLC, a prominent financial institution, is set against a backdrop of economic challenges. The company’s financial projections for 2024 and 2025 indicate a slight variation in price-to-earnings ratios, with figures standing at 7.6 and 6.7, respectively. The price-to-book ratio reflects a cautious approach, projected at 0.7 in 2024 and 0.6 in 2025.

While the return on equity (ROE) demonstrates a steady performance around 8.8%, the dividend yield suggests a modest increase from 2.7% to 3.1% over the same period. Despite these challenges, Standard Chartered remains committed to navigating through economic uncertainties while focusing on stability and growth.

NatWest Group: Emphasizing Stability and Growth

NatWest Group PLC stands out with its emphasis on stability and growth within the financial sector. The company’s price-to-earnings ratio is projected at 8.0 for 2024, slightly decreasing to 7.6 in 2025. The price-to-book ratio remains steady at 0.9 across both years, signaling a consistent valuation approach.

The ROE is anticipated to hover around 12.1% and 11.8% for 2024 and 2025, respectively, indicating a focused effort on maintaining profitability. NatWest’s dividend yield is expected to show a gradual increase from 4.8% to 5.1%, reinforcing its commitment to shareholder returns.

Lloyds Banking Group: Pursuing Consistent Performance

Lloyds Banking Group PLC is projected to maintain a consistent performance in the coming years. The company’s price-to-earnings ratio is forecasted at 7.9 for 2024 and 7.5 for 2025, reflecting a stable outlook. With a price-to-book ratio of 0.9 in 2024 and 0.8 in 2025, Lloyds demonstrates a balanced valuation approach.

The ROE is expected to remain steady at 10.8% in 2024, slightly decreasing to 10.1% in 2025. The dividend yield is projected to rise from 5.6% to 6.0%, indicating a commitment to rewarding shareholders while navigating through economic fluctuations.

Conclusion

This comprehensive analysis sheds light on the strategic directions and financial projections of HSBC, Standard Chartered, NatWest Group, and Lloyds Banking Group. Each institution showcases its unique approach to navigating the dynamic financial landscape while prioritizing shareholder returns and sustainable growth. Investors are encouraged to consider these insights while making informed decisions in the ever-evolving financial market.