Bank of East Asia posted ~USD780m net profit for FY12

Barclays cites 3 reasons behind the profit beat.

According to Barclays, BEA reported net profit of HK$6,056mn for FY12, higher than its and Bloomberg estimates by 17% and 23%, respectively. The profit beat was due to: 1) strong net interest income from margin expansion and stronger loan growth in 2H; 2) investment/trading/property revaluation gains; and 3) low credit costs. FY12 underlying profit was c5% above our estimates. China operation’s profit declined by 5% y/y.

Here's more from Barclays:

Margin expansion in 2H despite China drag: BEA’s group margin expanded by 7bps h/h to 1.70% in 2H12, whereas we had anticipated margins to fall from China’s interest rate cut pressures. We believe the strong margin in 2H12 was due to lower HK$ funding costs from increasingly abundant liquidity conditions in Hong Kong, and higher yields on part of its corporate loan book. We await management comments at the briefing to be held later today for further details.

Loan growth strong in Hong Kong, but slow in China: BEA reported loan growth of 6% h/h in 2H and 11% y/y in 2012, ahead of the industry growth rate of 5% in 2H and 10% in FY12, driven by domestic corporate loans especially to property developers, financial companies and the transport sector. However, China and trade finance loans combined grew at a much slower pace at c2% in 2H12 vs 12% in 1H.

Lower dividend payout: A dividend of HK$1.06/sh was declared for FY12, falling short of our forecast of HK$1.12/sh. The dividend payout ratio was cut to 39% (from 48% in 2011). Tier 1 capital ratio rose to 10.7% (from 9.4%), boosted by the private placement to Sumitomo in December.