Core Viewpoint - The company's 1H25 revenue growth of 3% met expectations, but net profit decreased by 35% year-on-year, primarily due to increased impairment losses in Hong Kong commercial real estate [1][2]. Revenue and Profit Trends - 1H25 net interest income fell by 7% year-on-year, with a weak loan demand leading to a decline in net interest margin to 1.99%, down from 2.29% in 1H24 and 2.20% in 2H24, mainly due to lower Hibor rates [1]. - Customer loans decreased by 5% year-on-year and 2% compared to the end of last year, indicating continued weak credit demand [1]. - Deposits grew by 9% year-on-year and 3% compared to the end of last year, with the company planning to allocate surplus funds to high-quality fixed-rate sovereign debt securities and structural hedging to mitigate future interest rate cuts' impact on net interest income [1]. Non-Interest Income - Fee income increased by 23% year-on-year, while other non-interest income rose by 46%, driven by strong growth in securities brokerage services, structured products, and investment fund sales [1]. - The increase in non-interest income was also supported by higher foreign exchange trading revenue due to market volatility and increased funding swap transactions [1]. Impairment Losses and Credit Costs - The significant increase in impairment losses, which were more than double that of the same period last year, was the main reason for the lower-than-expected net profit [2]. - The credit cost rose to 1.19%, compared to 0.35% in 1H24 and 0.77% in 2H24, primarily due to increased provisions for new non-performing loans in Hong Kong commercial real estate [2]. Dividends and Share Buybacks - Despite the decline in net profit, the company increased its dividend and maintained its share buyback program. The declared dividend for Q2 was HKD 1.3 per share, totaling HKD 2.6 per share for the first half, an 8% increase year-on-year [2]. Earnings Forecast and Valuation - The company adjusted its revenue forecasts for 2025E and 2026E upwards by 2.4% and 4.3% to HKD 41 billion and HKD 42.1 billion, respectively, while lowering the 2025E net profit forecast by 13.9% to HKD 14.7 billion and raising the 2026E net profit forecast by 4.1% to HKD 17.6 billion [2]. - The current trading valuation is at 1.3x for both 2025E and 2026E P/B, with a target price maintained at HKD 109.5, reflecting a potential downside of 3.8% [2].

Group 1 - The core viewpoint of the report is that CICC has adjusted its revenue and net profit forecasts for Hang Seng Bank for 2025 and 2026, reflecting a recovery in revenue but significant provisioning impacts [1] - The bank's 2Q25 revenue met expectations, while profit fell short due to impairment losses related to Hong Kong commercial real estate [2] Group 2 - In 1H25, net interest income decreased by 7%, with weak loan demand and declining interest margins, primarily due to lower Hibor rates [3] - The bank's non-interest income grew significantly, with a 23% increase in fee income and a 46% increase in other non-interest income, driven by securities brokerage services and foreign exchange trading [4] Group 3 - The substantial increase in impairment losses was the main reason for the lower-than-expected net profit, with credit costs rising to 1.19% due to higher provisions for new non-performing loans in Hong Kong's commercial real estate sector [5] - Despite the decline in net profit, the bank increased its dividend and maintained share buybacks, declaring a dividend of HKD 1.3 per share for Q2 and a total of HKD 2.6 per share for the first half, an 8% increase year-on-year [6]