The Hang Seng Index (HSI) represents the Hong Kong stock market and it includes the biggest and most liquid stocks in Hong Kong. In all, there are 50 index components, with most of the stocks in the Financials, Properties and Construction sectors. Here, let’s explore the top three largest companies of the HSI in terms of their weighting (as of June 2019; latest available data).
The largest company on the Hang Seng Index is AIA Group Ltd (HKSE:1299), with a weighting of 10.64%. AIA is one of the largest publicly listed pan-Asian life insurance groups and was first established in 1919 in Shanghai, China.
The following shows how AIA’s business has grown from 2014 to 2018:
Source: AIA Group 2018 annual report
AIA’s value of new business, which measures expected profits from new premiums and is a key gauge for future growth, increased 21% annually from US$1.8 billion in 2014 to around S$4 billion 2018. Similarly, operating profit has grown over the years, from US$3.2 billion to US$5.3 billion.
AIA could continue to do well in the future. In its 2019 first-quarter earnings release, AIA had an upbeat outlook:
“Asia’s macroeconomic fundamentals remain resilient and policymakers have taken proactive actions to support their economies in response to challenges in the global environment. The strong domestic drivers of growth and major demographic trends continue to provide positive structural support for the long-term prospects of AIA’s businesses. We remain confident that the consistent focus on executing our strategic priorities will deliver long-term, sustainable value for our shareholders.”
At AIA’s closing share price of HK$82.55 on Tuesday, it had a PB ratio of 3.4 and a dividend yield of 1.5%.
Chinese tech giant Tencent Holdings Ltd (HKSE:700) comes in second, taking up 9.96% of the index. Founded in 1998, Tencent is an internet-based technology headquartered in Shenzhen, China. The company is the brainchild behind popular apps such as WeChat and QQ. The following shows Tencent’s market shares of its various businesses.
Source: Tencent Q1 2019 results presentation (note: MAU refers to monthly active user accounts, and DAU refers to daily active user accounts)
In terms of business growth, Tencent has grown phenomenally. The internet company’s revenue climbed from RMB 78.9 billion in 2014 to RMB 312.7 billion in 2018, translating to an annualised growth of 41%. Likewise, net profit has grown 34.8% annually from RMB 23.8 billion to RM 78.7 billion during the same time frame.
With such strong revenue and earnings growth, Tencent’s shares do not come cheap. At a share price of HK$373.20 on Tuesday, it had a price-to-earnings ratio of 38 and a dividend yield of just 0.3%.
Meanwhile, HSBC Holdings plc (HKSE:5) is the third-largest company of the HSI, taking up 9.64% of the index. HSBC, which was founded in Hong Kong in 1865, is one of the world’s largest banks. It serves over 39 million customers worldwide and currently has a dual primary listing in Hong Kong and London. Previously a firm favourite of local Hong Kong investors for its reliable dividends and strong balance sheet, it has fallen short of expectations more recently.
In terms of financial performance, HSBC has not done that well as its total operating income has fallen over the years. From 2014 to 2018, the metric declined from US$74.6 billion to US$63.6 billion. Earnings per share (EPS) has also fallen during the period, coming down from US$0.69 to US$0.63. However, dividends per share have climbed from US$0.41 in 2011 to US$0.51 in 2018.
HSBC’s shares ended at HK$63.80 apiece on Tuesday. At that share price, it was going at a price-to-book (PB) ratio of 0.9 and a relatively attractive dividend yield of 6.3%.
HK MoneyClub (www.hkmoneyclub.com)