EUR 850.00 For Business Accounts Only

Morningstar | Standard Chartered's 1H Result Highlights Continued Improvement in Underlying Operations

Standard Chartered’s first-half result showed another improvement in the bank’s underlying operations. Both net interest income and fee income increased on the previous half and the year-ago period, while credit costs were meaningfully lower. Improving profitability in recent years has put the bank on a stronger footing from a capital perspective. As such, the bank will reinitiate its interim dividend of USD 0.06, after distributing USD 0.11 per share at the end of fiscal 2017. The common equity Tier 1 ratio improved by 60 basis points to 14.2% against the prior half, mainly driven by higher profitability and a decline in risk-weighted assets. The latter was due to a lower operational and market risk-weighted assets, along with foreign exchange translation. Management has reiterated that the common equity Tier 1 ratio ranges between 12% and 13%, largely in line with banks under our coverage in the region. From a capital perspective, we do not expect significant tightening, and regulatory risk remains with an ongoing investigation by U.S. authorities. We assume a payout ratio of 30% in fiscal 2018, and 35% thereafter. Our no-moat rating on the bank is unchanged, as we still see the bank generating a return below our cost of equity of 10%. The latter includes a 1% country risk premium, proportionate to the total assets of each operating region. Our fair value estimates of HKD 71 and GBX 700 are unchanged. Our fair value estimate for the U.K.-listed shares assumes an exchange rate of GBP 0.79 per U.S. dollar. While we believe the bank is slightly undervalued, the margin of safety is not large enough and our 3-star rating is unchanged.