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Investors have cheered Bank of East Asia's run of record earnings, pushing the lender's shares up as much as 6.5 per cent yesterday.
The family-owned bank on Tuesday posted a record result for the fourth consecutive year, with solid growth helped by an increase in interest income.
Analysts said the forecast-beating results had eased their concerns over the capital pressure and deteriorating credit quality at the bank's China subsidiary, prompting research teams at Goldman Sachs, Morgan Stanley, HSBC and UOB Kay Hian, among others, to raise their share price targets.
"BEA seems to be an early cycle beneficiary of the ongoing monetary tightening in China, the sustainability of which would depend on the performance of China's credit quality," Goldman Sachs analyst Gurpreet Singh Sahi said. The firm revised up its price target on the stock to HK$32 from HK$29.40.
Morgan Stanley raised its price target to HK$38 from HK$33, citing better controls on the bank's capital and costs.
Analysts expect BEA, with more than 40 per cent of its loan book coming from the mainland, to outperform its banking peers in the short term. They like the relatively stable credit quality in its China business.
The stock rose 4.62 per cent to close at HK$32.80 yesterday, after rising to its highest in more than six weeks during the session.
Citi analyst Gary Lam said: "BEA's results offer a favourable cross-read to the sector, especially on Bank of China (Hong Kong)." BOCHK would also be able to capture such returns, given that its yuan deposits amounted to 20 per cent of the total, he said.
Net interest margin - a gauge of lending profitability - jumped 23 basis points to 1.9 per cent last year, helped by its China unit BEA China's gain on deposits following a rise in interbank rates on the mainland.
BEA yesterday said it injected an extra 2 billion yuan of capital into BEA China, taking its capital base to 10 billion yuan. The move would help the subsidiary to pursue opportunities arising from financial liberalisation on the mainland, it said.
The bank's net profit climbed 9.2 per cent to HK$6.6 billion last year, while its return on equity ratio fell to 10.98 per cent from 11.9 per cent in the previous year.
"In the coming years, we believe BEA will be able to sustain ROE above 10 per cent, driven by better operating efficiency and increasing opportunities in the overseas market as more Chinese companies expand overseas," UOB Kay Hian analyst Edmond Law wrote in a report. The brokerage raised its share price target to HK$36.50, from HK$34.


Investors cheer as BEA sets another profit record

Analysts expect BEA, with more than 40 per cent of its loan book coming from the mainland, to outperform its banking peers in the short term. 

Business

Banking & Finance