Hang Seng Bank: Share Buyback Is Positive Sign, and Capital Position Can Well Support It

Hang Seng Bank's proposed share buyback of up to HKD 3 billion was unexpected but positive. The bank has not been buying back shares despite a comfortable capital position, with a common equity Tier 1 ratio above 16%. While the buyback is relatively immaterial—it equates to around 1.7% of the bank's share base at the current share price—we think it opens the door for future buybacks, and as such, investors are likely to rerate Hang Seng Bank positively. We keep our fair value estimate at HKD 110 per share, given the limited impact, and see further upside for the narrow-moat bank. At our fair value estimate, Hang Seng Bank would trade at 1.3 times 2024 book value, which we believe is supported by a return on equity of 12%-13% and an attractive dividend yield of 5.9%.