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Is HSBC's share price a "Buy" as bank targets Asia's super-rich?

HSBC’s [HSBA] pivot to Asia just keeps on going. This time the bank is targeting the continent’s increasing number of ‘super-rich’ to drive revenue and, hopefully, bring a bit of life back to the company’s share price. 

To do this, and to potentially lock in positive share price momentum in the mid-term, the bank is expanding its wealth service staff to meet the demands of high-net worth individuals in the continent. Nowhere is this more evident than in Singapore.HSBC 1-year share price performance, CMC Markets, 03 June 2019

 

The city-state is booming with millionaires calling it home. According to Credit Suisse, Singapore saw its population of millionaires grow 11.2% from 2017 to 2018. Credit Suisse expects this number to increase 5.5% every year until 2030. That would give HSBC a total addressable market of 239,640 millionaires to target with its wealth services in Singapore.

To take advantage of this growth, HSBC is adding another 50 members of staff to its retail wealth business in Singapore. These new employees are part of the 300 staff being hired to shore up the bank’s wider wealth operations in Asia.

 

Why target Asia's super-rich?

The targeting of Singapore is one part of HSBC’s larger strategy, to generate an extra $1bn from Asia’s super-rich by 2020. 

According to a report from UBS and PwC, Asia is home to 814 individuals with a combined net worth of $2.7t. The report forecasts Asia's billionaires to be wealthier than their US counterparts in under three years. Simply put: the more rich clients HSBC has, the more revenue the bank is likely to see.

Mark Surgenor, head of wealth at HSBC told Asian Banking & Finance:

"We expect that Asia will become the largest creator of wealth world-wide – the region’s total share of global private financial wealth is forecast to overtake North America by 2021 – and is growing rapidly. So it’s a huge opportunity for us."

“We expect that Asia will become the largest creator of wealth world-wide – the region’s total share of global private financial wealth is forecast to overtake North America by 2021” - Mark Surgenor, head of wealth at HSBC

To cater for its Asia expansion, HSBC is recruiting 1,300 roles in Hong Kong, Singapore and China. Tech jobs make up a big chunk of that number, with 1000 jobs being added to the bank’s technology centres in Guangzhou, Shanghai and Xi'an.

 

What could hold the share price back?

Investment in Asia hasn't come cheap. Last year HSBC sunk $200 million into China alone. That figure was $44 million in 2017. HSBC appears to be betting that big investment in the short-term will lead to longer-term growth. Income-seeking shareholders will hope that bank's 79.95% payout ratio remains protected. For the past 4 years, the stock's annual dividend payout has been $0.51 a share, and the stock now carries a 9.55% forward annual dividend yield. The danger is that HSBC will cut investor payouts to pay for further expansion in Asia.

 

Market cap£129.99bn
PE ratio (TTM)9.33
EPS (TTM)69.00
Profit margin28.41%

HSBC share price vitals, Yahoo finance, 03 June 2019

 

Being a UK-based bank, HSBC is also not immune from the effects that Brexit has had on the their domestic banking sector. To cut costs, it has announced that it will cull hundreds of jobs in its investment banking arm to focus on higher-returning areas. The hope will be that reducing costs will help drive up profits, or at least maintain margins in this turbulent time, to ultimately fortify the share price against macroeconomic uncertainty.

 

Is HSBC's share price a Buy?

HSBC’s stock definitely needs some positive news sooner, rather than later. It's down 11.8% over the past 12 months and has been moving sideways this year. Like the rest of the UK banking sector, Brexit and the China-US trade war have all taken their toll. 

11.8%

HSBC's share price decline in the last 12 months

But all this might make the share price a steal for traders who believe HSBC’s Asia play will pay off. Shares are cheap, trading around 7.4% off their 52-day low and have a single-digit P/E ratio of 9.34. 

The stock is also being backed by Goldman Sachs. The investment bank upgraded its assessment in May from neutral to buy, setting a 925p price target on the stock. Hitting this would represent a 43% upside on the current share price.

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