5 things you need to know about BEA's year-end operating trends

Group margins to remain stable.

According to CCB International, Bank of East Asia hosted a pre-close briefing focused on operating trends heading into year-end.

The pre-close update focused on key business drivers and the added color provided by management, particularly with regards to BEA China and margins provided a meaningful second- half update, especially as BEA does not report quarterly.

Here's more:

Key takeaways. (1) Group margins are likely to remain stable from 1H13 levels (1.83%) as an increase in asset yields largely offset an increase in funding costs;

(2) The momentum in fee income growth seen in the first-half (+19% YoY) is likely to be maintained driven by strong cards revenue and brokerage income given strong market conditions in 2H13;

(3) Credit quality normalization should be modest as credit stress encountered in select regions in China (Zhejiang / Fujian) remain contained.

The group NPL ratio, which stood at 43bp at mid-year, will likely land in the mid-40s for year-end; and (4) Management continues to stick with its 3-year CIR target of 55% set at the beginning of the year as progression continues to be ‘on track’.

Outlook. Shares of BEA have benefited from the improvement in sentiment towards China that has materialized since mid-year.

Margins have proven to be more resilient than previously expected and strong capital markets provide a meaningful tailwind to non-interest income.

We increase our target price to HK$33.00 (from HK$31.00) as we increase our forward earnings estimates for FY13-15F by 2%/6%/4% to reflect improved margin and fee income assumptions. We maintain our Neutral rating and consider the shares fairly valued.