BOC Hong Kong profits up 5% in 3Q

MayBank points more concern on latest operating trends.

BOCHK’s 9M12 reported pre-provision operating profit (PPOP) rose by 5% YoY to HKD18.9b.

Stripping out the Lehman Brothers related write-back, MayBank noted that core PPOP rose by 24% YoY, as rise in income (20%, higher net interest income and trading gain) was much higher than rise in expenses (12%).

On QoQ basis, 3Q12 core PPOP rose by 1% QoQ, to HKD6.1b.

Despite significant improvement, MayBank points some concern over the latest operating trends.

Here's from MayBank:

While 9M12 PPOP reached 79% of our old FY12 estimates, we are slightly concerned about: 1) The strong revenue seems mainly driven by trading income, which may not be sustainable. 2) The QoQ fall in net interest income and NIM (arguably from a high base in 2Q12 though).

On the positive side, the QoQ fall in loan provision charges was a positive surprise, and we are comfortable with its asset qualities.

When comparing 9M12 with 9M11: 1) Net interest income rose (due to improving return on CNY business, volume growth and improving yield). 2) Net interest margin (NIM) for both CNY business and HKD business both improved. 3) Trading gain rose, due to mark to market changes. 4) Net fee income fell slightly (securities brokerage and insurance). 5) There was a net charge of loan provisions, versus write-back in 9M11 (should be well-expected, as BOCHK already incurred net charge of loan provisions during 1H12).

Comparing 3Q12 with 2Q11: 1) Rise in income driven by trading gain and insurance segment. 2) Net interest income fell and NIM narrowed.
3) Net fee income also fell from the high base in 2Q12. 4) Loan provision charges fell.