Investec has reiterated its ‘buy’ rating for global banking giant HSBC, saying that the disposal of its stake in Chinese insurer Ping An could bode well for the 2012 dividend.
HSBC owns a 15.57% stake in Ping An, China’s second-largest insurance firm by assets, and is selling its interest to a Thailand-based conglomerate Charoen Pokphand Group (CP Group) for HK$72.74bn, equal to around $9.39bn, in cash.
The carrying value of its interest in Ping An at the end of 2011 stood at $6.37bn and so the post-tax gain of the sale is expected to be around $2.6bn, when accounting for foreign exchange differences.
The bank also said that the deal would strengthen its balance sheet, raising its core tier-1 capital ratio to an ‘eye-popping’ 12.2%, according to Investec analyst Ian Gordon.
The deal is subject to regulatory approvals but these ‘should not present any insurmountable obstacles’, Gordon said.
He said: ‘We welcome this further non-strategic disposal. Of course, with Ping An currently contributing c$1bn per annum to group profit before tax, it increases focus on the question of what HSBC can do with its rapidly emerging capital surplus, where a modest slowdown in Asian growth affords insufficient near-term opportunity.’
Nevertheless, Gordon said that the disposal proceeds should be sufficient enough for HSBC to raise its final dividend per share (DPS) to 18 cents, above the current consensus estimate of 16 cents. This would bring the full-year DPS to 45 cents, compared with the 43 cents forecast.
‘In contrast to HSBC’s 19% holding in BoCom, we have always regarded its stake in Ping An as a non-strategic play on China – one which has turned out rather well!’
Shares were up 0.88% at 641.8p in mid-morning trade on Wednesday.