Bank of East Asia Upgrading earnings and price target to HK$26.1, multiple variables at work BEA is extremely geared to an economic recovery. It benefits from the current interest rate environment, equity market performance, property market outlook, and has cost leverage as well. We look for 39% adjusted EPS CAGR between 2002 and 2004 — highest in our universe of banks. • 2004 estimates raised by 11%, we are 31% above consensus Our base case calls for 5% increase in property prices/loan demand. We have factored some margin improvement (+10 bps) in 2004 owing to wide prime/HIBOR spread and steep yield curve. Fees will likely gain from significant gearing to stock market and cost/income ratio is forecast to fall from 52% in 2002 to 43% in 2004. • Stock looks attractive at 12.7x 2004E earnings, 1.6x book and 5% dividend yield The stock trades at a discount to its regional peers, still one of the most attractively valued in a HK context and its re-rating is supported by reinstatement of adjusted ROE from 7.5% in 2002 to 13.1% in 2004. • We reiterate our In-Line view on the Hong Kong Financial Services industry We believe high dividend yields, low credit risk and earnings stability have appeal in an environment of modest growth ......