Imagine if Arsenal were to write a report on Manchester United. In Hong Kong's banking scene, the nearest thing to that would be HSBC writing a report on its close local rival, Standard Chartered.
Well thanks to StanChart's recent Hong Kong listing, such a thing just came to pass yesterday (Thursday).
As you would expect from two rivals, no punches were pulled. HSBC Securities initiated coverage on StanChart with a resounding 'sell' - and did so in a report called "A compelling story without substance". StanChart's stock is currently trading at around HK$92.50 but HSBC has a price target of HK$65, suggesting the stock is 30% overvalued.
The report notes, "StanChart is facing a hostile operating environment, both economically and of its own making... Its strategies may be correct on a standalone basis, but StanChart is not alone, nor will its strategies bring unique value to investors. They are me-too strategies, compounded by its own poor implementation, where the benefits of past strategies have not filtered through to the bottom line. Some of the banks's other strategies are just blue sky and will not achieve ROE targets and therefore sufficient earnings to sustain the premium the stock carries."
It adds that StanChart has "blotchy loan growth". It also says the sum-of-the-parts valuation is HK$66 and that a dividend discount model implies HK$64. To cap it all, it says StanChart is "value-destroying" and "has poor prospects".
What StanChart boss, Mervyn Davies will make of all this is anyone's guess. But it should make interesting lunchtime conversation when he next dines with Sir John Bond in London.
