Valuation of Hang Seng Bank: drivers behind growth potential

Abstract

This report presents two valuation models capturing growth drivers of Hang Seng Bank (“HSB”) stock1 to project its future performance based on annual time series data from FY2000 to 1H2006. The Dividend Discount Model in this report is determined by constant growth model; and the P/B ratio model is used to compare the stock performance of HSB to the overall Banking sector in Hong Kong. Given the improving economic environment in Hong Kong, our assumptions are mainly based on the public information of HSB as reflected in its annual reports, investor relations news and overall economic picture. The outlook of the future development is also based on our interview of HSB’s CFO, Mr. Patrick Chan. Thus we have a rather strong information source to support our valuation and forecast. Analysis and estimates of the stock performance of HSB is briefly introduced in this report from three perspectives: China Market, Property Revaluation and Mortgage in Residential Markets, and finally Non-Interest Income. The focus of this report is the stock valuation in light of the above estimates of HSB, which may provide a strong guide for investors to make their decisions.