Morgan Stanley: HSBC HOLDINGS (00005) net interest and other income outlook offset by higher provisions, slightly raise target price to 150.5 Hong Kong dollars.

Morgan Stanley released a research report stating that HSBC HOLDINGS (00005) announced its first quarter performance yesterday afternoon, with its Profit Before Tax (PPOP) exceeding market expectations by 1%. Other income exceeded by 6%, enough to offset rising costs. The net interest income guidance was raised, along with growth in other income, offsetting the expected credit loss provision (ECL) increase to 45 basis points. As a result, the bank raised its earnings per share forecast for HSBC by 1.5 to 2.4%. The bank reiterated its "Hold" rating for HSBC, slightly raised the target price from HK$149 to HK$150.5. The bank pointed out that HSBC currently has a Return on Tangible Equity (ROTE) of 17-19% in 2026 and 2028, trading at 1.8 times Tangible Net Asset Value (TNAV). Capital returns remain attractive to shareholders. Adjusted pre-tax profit is in line with the market. Net interest income from the bank is as expected, while other income offset higher costs, driving PPOP above expectations. Provisions are 9% higher than the market. The Common Equity Tier 1 (CET1) capital ratio is 14%, down 40 basis points from the previous quarter, in line with market expectations and includes the integration of HANG SENG BANK, paving the way for share buybacks in the second quarter. Dividend per share announced is $0.10, in line with expectations; TNAV per share is $9.46, down 2% from the previous quarter. Morgan Stanley indicated that HSBC reaffirmed its ROTE target of at least 17%. The group now expects the bank's net interest income in 2026 to be around $46 billion, higher than the previous guidance of "at least $45 billion", benefiting from improved interest rate prospects (the bank forecasts $46 billion, while the market consensus is $45.8 billion). ECL cost rate was raised from about 40 basis points to 45 basis points. The bank forecasts ROTE to increase to 18.6% by 2028, with the company maintaining confidence in the >17% guidance, despite tail risks in the context of ongoing tensions in the Middle East. The bank believes the risks are more on the revenue side rather than in provisions, and activities in April remain strong.