Hong Kong Financial Services:HSBC/STAN,Lowering beta/COE,raising TPs 6%/8%;still Buy on HSBC,Neutral on STAN

Lowering beta and COEs; raising TPsWe are reducing the beta assumptions in theresidual income model we use to find TPs forHSBC (0005.HK) and STAN (2888.HK); this is toreflect the lower-than-expected volatility since weraised assumptions post Brexit (June 28, 2016).We had expected higher uncertainty in terms ofearnings, balance sheets and operations to boostshare price volatility, but that did not transpire.Our beta assumptions for HSBC/STAN move to1.0X/1.2X from 1.1X/1.3X and, as a result, COE fallsto 9.0%/10.1% from 9.6%/10.7% (back to our pre-Brexit assumptions). As a result, we raise TPs toHK$74(1.11X 2017E P/B) from HK$70for HSBC andto HK$66(0.63X 2017E P/B) from HK$61for STAN.We tweak HSBC’s 2016E-20E EPS by -2% to +1% onweaker non-USD FX; no changes to STAN EPS.