HSBC upgrades HP Buy rating to $30 PT from $28.1.

HSBC upgrades HP Buy rating to $30 PT from $28.1.

HSBC Holdings, a leading global bank, has announced a significant acquisition that could reshape its financial landscape. The bank has agreed to acquire 680 million shares of Hang Seng Bank, increasing its stake from 63% to 100%. The acquisition, valued at HKD 106 billion (approximately USD 13.6 billion), is subject to shareholder approval and is expected to be completed gradually before mid-2026, according to a CICC report.

CICC, a leading financial research firm, has provided a detailed analysis of the acquisition. The firm expects the acquisition to impact HSBC's return on equity (ROE) and dividend yield. For fiscal year 2026, the ROE is projected to decline from 9.4% to 7.5%, while the ROE for the period Q4 2025 to Q3 2026 is expected to drop from 9.3% to 6.2%, the report notes.

CICC also noted that the earnings per share (EPS) of HSBC ordinary shares will increase as profits attributable to Hang Seng's minority shareholders are no longer deducted. This is expected to lead to an increase in dividends per share (DPS) and an enhanced dividend yield for HSBC ordinary shares, according to CICC.

The acquisition is expected to increase the dividend yield by approximately 3%, raising the FY2026 dividend yield from 5.3% to 5.4%. However, the projected buyback amount for FY2026 is expected to decrease from USD 10 billion to USD 5 billion, reducing the buyback return rate from 4.1% to 2%, CICC estimates.

From a price-to-book (P/B) valuation perspective, the acquisition reduces net assets by about 4%. Assuming the P/B ratio remains unchanged at 1.6x, the company’s valuation is similarly impacted by around 4%, the report adds.

CICC has assigned HSBC a rating of 'Outperform' with a target price of HKD 111.9. The firm believes that the market has largely priced in the short-term impact of the acquisition, as evidenced by the 6% decline in share price on the first trading day after the announcement, CICC observes.

In terms of dividend and buyback returns, the acquisition lowers HSBC's combined dividend and buyback return rate for FY2026 to 7.5% (with the return rate for Q4 2025 to Q3 2026 declining to 6.2%), compared to Standard Chartered Group’s 8.8%, according to CICC.

CICC noted that the above estimates do not account for the medium- to long-term impact of the acquisition on HSBC’s per-share equity or return on equity (ROE). Continued attention should be paid to subsequent developments. Upside risks include stronger-than-expected synergies post-acquisition, driving ROE and dividend/buyback returns higher after three quarters. Downside risks include sustained underperformance of ROE and dividend/buyback returns over the medium to long term, as well as potential underperformance of HSBC and Hang Seng due to risks associated with Hong Kong’s real estate sector, the report warns.