Wing Hang Bank's strong capital position allows for a dividend payout increase

From 35% for FY12 to 50% by FY15.

According to Barclays, while 2H13 outlook is more challenging as margins stabilize and loan growth slows, WHB's strong capital position (FY13E CET1 of 12%) is supportive of a gradual rise in dividend payout ratio back to pre-crisis levels (from 35% currently to 50%).

Here's more from Barclays:

Profit slightly better than expected: Wing Hang Bank reported 1H13 net profit of HK$1bn, +30% h/h, -1.8% y/y and 7%-8% above our and consensus estimates, driven by strong revenue growth on margins expansion (+12bps h/h to 1.69%) and strong volume growth (+7.5% h/h) led by trade finance and trade bills.

Expenses grew faster-than-expected, +9% h/h, especially in the "other" category, resulting in a slight miss in PPOP. Management highlighted that it was due to a low base effect from 2H12, which included about HK$20m of Lehman-related writebacks. The cost/income ratio was 50% in 1H13 (vs. 45% in 1H12, flat h/h). The credit cost was low at 4bps.

2H13 interest savings on sub-debt redemption: WHB's US$225mn upper Tier 2 sub-debt, bearing 9.375% interest is to be redeemed on 11 September 2013, and we expect this to result in about HK$40m in interest savings in 4Q13.

Management guides for other underlying margin trends to remain stable in 2H13 although we see downside risk if liquidity tightens further, driving up funding costs.

Property disposal gain in 2H13 a boost to earnings and capital: WHB will dispose of an office building (60 Gloucester Road, Wanchai) for HK$1,588m to be completed in September and will recognize a one-off disposal gain of HK$255.4mn.

Management disclosed that the realization of property valuation gains will result in core Tier 1 rising to 12% (from 10.8% in 1H13). We revise our 2013E earnings estimates up by 13% mainly to reflect the property disposal gain and tweak our estimates for 2014-15E earnings lower by 2-4% for higher expenses.

Above-consensus dividend estimates: We believe WHB's strong capital position will allow it increase its dividend payout ratio from 35% for FY12, gradually to 50% by FY15. Our 2013-15 DPS estimates are for a payout of 40% of earnings as dividends (vs 35% for 2012), and our 2013-15E DPS estimate is 11-22% more than Bloomberg consensus.