Bank of East Asia

BEA shares fall as profit growth slows to HK$1.87b on rising costs

PUBLISHED : Friday, 03 August, 2007, 12:00am
UPDATED : Friday, 03 August, 2007, 12:00am

Bank of East Asia shares slid yesterday after the city's fifth-largest lender reported a weaker than expected 19.9 per cent rise in first-half earnings.

The shares fell as much as 7.69 per cent as investors punished the bank immediately after the release of the results. They closed 4.32 per cent lower at HK$45.40.

Profit growth, although a record for the fourth consecutive year, was towards the lower end of market forecasts as tax expenses exceeded analysts' expectations. That contrasted with better than expected results from HSBC and Hang Seng this week.

David Li kwok-po, the bank's chairman and chief executive, shrugged off the share tumble as the results were good. He expected better results for the second half.

Net profit rose to HK$1.87 billion from HK$1.56 billion a year ago, driven by strong growth in mainland earnings and a rise in non-interest income.

Chief financial officer Daniel Wan Yim-keung said taxes rose 103.5 per cent due to higher levies in some overseas markets including the mainland, as well as deferred tax.

The bank saw strong growth in core businesses, with net interest income gaining 16.6 per cent despite net interest margins shrinking 12 basis points to 1.93 per cent. Non-interest income rose 45.8 per cent, aided by surges in trading profit and fee income amid the robust stock market.

Operating profit after provisions increased 29.7 per cent to HK$2.27 billion. Earnings from the mainland soared 83 per cent to HK$415 million, accounting for 19.4 per cent of total profit. That compares with 16.6 per cent at the end of last year.

'We could achieve a target of 30 per cent from the mainland in one to two years if the business maintains its current growth,' Mr Wan said.

BEA (China), which incorporated in the mainland in April, saw deposits grow 155 per cent in the first half and 53 per cent after local incorporation. Loans grew 68 per cent year on year.

An analyst at a US brokerage said the outlook for BEA was still promising as the higher expenses were understandable due to its expansion, particularly in the mainland.

Total expenses increased 33.1 per cent to HK$2.17 billion which also dragged down the capital adequacy ratio to 13.1 per cent from 14.2 per cent at the end of last year.

Mr Wan said costs would slow when the bank began reaping the rewards of its investment. The interim dividend increased 11.6 per cent to 48 HK cents per share.