UBS: Asset quality remains uncertain when the target price of Huishang Bank (03698) was raised to HK$3.05

The Zhitong Finance App learned that UBS released a research report saying it lowered Huishang Bank (03698)'s shareholders' net profit forecast for 2025 to 2027 by 2.6 to 8.8%, while revenue recorded a 5.5% increase. It is also expected that the company's net interest spread will drop 10 basis points year on year this year, and loans will increase by 11.8%, compared to 14.6% in the same period last year. The bank raised its target price from HK$2.01 to HK$3.05 and renewed the “sell for sale” rating.

Huishang Bank's stock price performance from the beginning of the year to date is due to an increase in dividend payout ratios, a decline in non-performing loan ratios, and investors seeking undervalued banks. The bank believes that Huishang Bank's asset quality is still uncertain. At the end of last year, the SML ratio increased 33 basis points year over year to 1.13%, while the overdue loan ratio increased 4 basis points to 1.26%. Furthermore, the ratio of provisions to loans fell to 2.82%, indicating that banks need to make further impairment preparations to rebuild provisions. This may slow down profit growth, so it is estimated that the company's ratings will not be further restructured for the time being.

However, the bank said that in view of the uncertain asset quality of Huishang Bank, its yield is not particularly attractive. Although there is potential room for increase in dividend payout rates, relatively steady loan growth may prevent real growth in retaining profits as capital.