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Hang Seng Bank (SEHK: 11) is one of the leading banks in Hong Kong. It is also part of HSBC Holdings plc (SEHK: 5), which holds a majority equity interest in the bank.
At its current price of HK$159.90 (at the time of writing), Hang Seng Bank’s shares are trading at 25% below their 52-week high price of HK$212.60. This raises a question: is Hang Seng Bank cheap now? This question is important because if the firm’s shares are cheap, it might be a good time for investors to pick up a bargain.
Clearly, there is no easy answer to the above question. However, we can still get some insight by comparing Hang Seng Bank’s current valuations with the market’s valuation. The three valuation metrics I will focus on are the price-to-book (PB) ratio, price-to-earnings (PE) ratio, and dividend yield.
I will be using the iShares MSCI Hong Kong Index Fund (NYSEARCA: EWH) as a proxy for the market; the iShares MSCI Hong Kong ETF is an exchange-traded fund that tracks the MSCI Hong Kong Index, a market cap-weighted index made up of a diverse selection of small-, large- and mid-cap stocks primarily traded on the Hong Kong Stock Exchange.
Hang Seng Bank currently has a PB ratio of 1.8, which is higher than that of the iShares MSCI Hong Kong ETF’s PB ratio of 1.2. Yet, its PE ratio of 12.8 times is lower than the ETF’s PE ratio is 12.9.
Similarly, the company’s dividend yield of 4.8% is higher than the market average’s dividend yield of 3.2%. The higher a stock’s dividend yield, the lower its valuation.
Overall, I think Hang Seng Bank is trading at a reasonable valuation as compared to the market average, given its low PE ratio and high dividend yield.
In particular, income investors might find the company a solid candidate to study further given its high dividend yield.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Lawrence Nga doesn’t own shares in any companies mentioned.