Citigroup has released a research report reaffirming its "Buy" rating on Bank of East Asia (00023) with a target price of HK$16. The bank noted that the company's attributable profit to shareholders for the first half of the year surged 155% sequentially to HK$2.4 billion, and rose 7% year-on-year, exceeding market expectations by 8%.

Revenue surpassed forecasts by 2%, primarily driven by robust non-interest income, while operating expenses came in 2% lower than anticipated. The group declared an interim dividend of HK$0.46 per share, lifting the payout ratio from 45% in the same period last year to 50%.

Citigroup highlighted the strong performance of non-interest income, with fee income climbing 23% sequentially and 16% year-on-year to HK$1.9 billion, beating market projections by 5%. This growth was largely fueled by a surge in wealth management-related fee income, including a 25% year-on-year increase in bancassurance fees and a 31% rise in investment product fees. Other non-interest income advanced 23% year-on-year to HK$1.5 billion, exceeding expectations by 10%.

Total operating expenses remained flat year-on-year at HK$4.8 billion, 2% below estimates, benefiting from lower property-related costs and reduced internet platform expenses. On the downside, net interest income declined 4% sequentially to HK$7.7 billion, slightly underperforming expectations by 1%, with the net interest margin narrowing by 7 basis points sequentially. Loan growth remained flat quarter-on-quarter and rose 2% year-on-year, lagging behind the broader Hong Kong banking system's loan expansion, while deposits fell 2% sequentially.

Credit costs stayed elevated at an annualized 108 basis points, primarily due to impairment charges linked to mainland China's commercial real estate sector. The non-performing loan ratio edged up 2 basis points sequentially to 2.71%.