Citigroup: HSBC HOLDINGS (00005) second quarter performance is mixed, with the buyback scale below expectations.

Citigroup released a research report stating that HSBC HOLDINGS (00005) had a mixed performance in the second quarter. Revenue slightly exceeded expectations driven by wealth management, and guidance for net interest income was raised. However, the scale of share repurchase was below expectations, and there are concerns regarding cost guidance. The rating is maintained at "Buy" with a target price of HKD 171.8. Citigroup pointed out that HSBC's adjusted pre-tax profit (excluding significant items) for the second quarter was USD 10.3 billion, surpassing market expectations by 5%. Revenue was 2% higher than expected, primarily driven by non-net interest income (up 7% year-on-year at constant exchange rates), with wealth management rising by 21% year-on-year. Net interest income amounted to USD 11.6 billion, increasing by 3% quarter-on-quarter and roughly in line with expectations. Costs and impairments were generally in line with expectations, while the Common Equity Tier 1 capital ratio was 14.1%, 10 basis points lower than market expectations. The latest repurchase scale was only USD 1 billion, far below the market expectation of USD 2.2 billion. Management updated guidance for fiscal year 2026, raising the net interest income forecast from approximately USD 46 billion to above USD 46 billion (market expectation is USD 46.5 billion). Although the cost growth guidance remains targeted at 1% (around USD 34.2 billion), it was added that rising variable compensation could lead to a moderate increase in costs (market expectation is USD 34.3 billion). Additionally, management made new comments regarding costs for fiscal year 2027, indicating they would consider accelerating investment plans to support future growth, with some cost increases offset by organizational simplification. Citigroup believes that the strong performance in non-net interest income may be offset by higher cost guidance and the lower scale of repurchase, leaving overall market profit forecasts largely unchanged and reflecting a mixed performance overall.