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[Video Case Study] Is Bank of China (HK) Undervalued at +5% Yield?

October 28, 2019

I’ve made free our case study on Bank of China (Hong Kong) (SEHK:2388) from our Bulletproof Value Investing course.

In this case study, I explain:

Why Bank of China (Hong Kong) is very different from Bank of China
Discuss why the share price has declined by more than 20% this year
Make the case that the issues facing Bank of China are temporary
Discuss the future drivers of revaluation
Make the case of why Bank of China (Hong Kong) shares will be worth anywhere from 50% to 100% higher in the next few years

Watch our video case study on Bank of China here.

Many people are familiar with the three big banks in Singapore (UOB, OCBC and DBS). Like Singapore, Hong Kong is an offshore financial hub that is host to many financial institutions.

Readers will be aware that Hong Kong has been beset by recent political turmoil and social unrest which has also led to a precipitous decline in the share prices of many of these companies. The US-China Trade War has also contributed to the negative sentiment.

This has led many of these companies to trade at multi-year lows on valuation basis.

In this case of Bank of China (Hong Kong), it is currently yielding in excess of 5% with a very respectable payout ratio of about 45% to 50% in recent years.

Growth at a Reasonable Price (GARP)

Strong financial banks that are temporarily undervalued are one of my favorite investments and fit into the category of “Growth at a Reasonable Price aka GARP” type investments.

They generally pay out under 1/2 their earnings in the forms as dividends and retain the rest of re-invest back into the business.

Good banks are normally able to generate a return on equity of anywhere from 11% to 13% which compounded over long periods of time can be extremely powerful.

In the case of Bank of China (Hong Kong), it has seen its book value grow in excess of 11% over the last decade.

Where will the share price Bank of China (Hong Kong) be in the next three year to five years?

In the case study, I make the case for Bank of China (HK) to be trading at anywhere from 50% to 100% higher from a combination of revaluation gains, the growth in book value as well as returns from dividends.

More importantly, Bank of China is one of the strongest financial institutions in Hong Kong with a rock solid balance sheet and a proven track record at underwriting loans.

It is extremely well capitalized and has one of the lowest Non-Performing Loan ratios among the Hong Kong banks. This will put it in strong stead to ride out the current storm confronting Hong Kong.

PS: If you want to learn more about GARP (Growth at a Reasonable Price) type investment in banks in Hong Kong & Singapore that can generate returns of 10-15% per annum, check out our new course Bulletproof Value Investing.The course will sell for $997 USD normally, but we are letting you join for just $297 USD for the first 50 students.