HSBC: What We Think of the Stock After Earnings

Key Morningstar Metrics for HSBC Holdings

• Fair Value Estimate
  : GBX 1,490
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : Medium

What We Thought of HSBC Holdings’ Earnings

HSBC’s second-quarter pretax profit, excluding notable items, rose 13% year on year, supported by stronger banking net interest income and wealth fee income. Annualized return on tangible equity reached 19.5%. HSBC also announced a USD 1 billion share buyback.

Why it matters: HSBC fine-tuned its guidance to reflect modestly stronger banking NII and larger reorganization savings, but its medium-term growth targets remain unchanged. We updated our assumptions to reflect the latest results, but the impact on our earnings forecasts is immaterial.

• We now expect a more favorable rate environment for HSBC, as we believe the US Federal Reserve will delay rate cuts until 2027. Our updated forecasts also incorporate modestly stronger loan growth after lending activity in Hong Kong rebounded from several quarters of weak demand.
• We expect HSBC, one of Asia’s leading wealth managers, to benefit from the region’s structural wealth growth. We forecast average revenue growth of 6% over 2026-30, supported by growth in assets under management and improving product penetration.

The bottom line: We maintain our fair value estimate of GBX 1,490/HKD 158/USD 101 for narrow-moat HSBC, as the updated guidance and the USD 300 million gain from the sale of its Egypt retail banking business, scheduled to be completed in the second half of 2027, have limited impact on our valuation.

• We think shares are fairly valued. However, there could be upside if HSBC exceeds its 2028 revenue growth target of 5% (excluding notable items) as it accelerates planned investments from 2027 to support stronger long-term growth.
• In this bull-case scenario, we expect higher costs in 2027 as investment spending increases, partly offset by additional cost savings from ongoing restructuring initiatives. Management noted that investments will focus on core business pillars and are expected to generate returns relatively quickly.