Portfolio | ASEAN expansion in crosshairs of BOC Hong Kong

Buying banking assets in Southeast Asia directly from its parent company Bank of China may provide a quick boost to lender BOC Hong Kong (BOCHK), stock brokers Barclays and Nomura said.

Shares of BOCHK popped up 8.2 per cent to close at an all-time high of HK$33.15 on Friday, when it said the two lenders had been reviewing their strategies and assets in Southeast Asia, which might lead to a transfer of banking businesses from the parent company to the Hong Kong unit. The stock fell slightly on Wednesday, giving up 1.4 per cent as part of an overall market retreat.

“BOCHK becomes the regional arm of the Bank of China group and, thus, is repositioned to benefit from new opportunities arising from China’s ‘One Belt, One Road’ initiative,” said analysts at Barclays in a report on May 26.

Bank of China owns a 66 per cent stake in BOCHK and has branches in Southeast Asian countries such as Thailand, Malaysia and Vietnam, according to its annual reports. BOCHK’s profit before tax excluding the greater China region represents about 7 per cent of its entire business.

Barclays also upgraded the rating on BOCHK shares to overweight from equal weight, with a new 12-month target price on the stock to HK$38 from HK$27, representing a potential 41 per cent upside based on its unchanged blended valuation methodology.

In the research report, Barclays highlighted BOCHK’s sizable funding base in US dollar and offshore renminbi, given its sole clearing bank status in Hong Kong. “BOCHK has a competitive edge over other Mainland and regional banks to finance ‘One Belt, One Road’ opportunities,” the report written by equity analyst Sharine Wong said.

Wong said BOCHK could become a niche player in the ASEAN region in the near term, targeting large corporate customers to finance infrastructure projects and try to tap the wealth of overseas Chinese retail customers.