On 27 Aug, CITICB reported 1H19 net profit of RMB 28.3bn, up 10.1% YoY and accounting for 60.5%/61.8% of CMBIS/consensus full-year estimates. For 2Q19, PPoP maintained a double-digit growth of 10.1% YoY (vs 23.4% YoY in 1Q19), on the back of strong net interest income (+13.7% YoY) and net fee income (+12.8% YoY), despite lower trading and investment return (-17.8% YoY). With modest growth in provision charge (+9.9% YoY), bottom-line earnings picked up faster at 11.3% YoY (vs 8.6% YoY in 1Q19). 1H19 annualized ROE slid 0.1ppt YoY to 13.8%.
- Results positives: 1) Loan growth accelerated to 6.3% in 1H19 (vs 5.7% in 1H18), primarily boosted by retail segment (+11.0% HoH), esp. mortgage and credit card. That said, asset quality of retail loans was well controlled, as retail NPL ratio edged down 10bp HoH to 0.9%. We believe higher retail exposure (+1.8ppt HoH to 43%) would underpin a better-than-peers margin trend amid LPR implementation process. 2) Deposit growth was robust at 10.5% HoH, despite lower proportion of demand deposits As a result, LDR declined 3.8ppt to 95.1%. 3) 1H19 CIR fell 1.3ppt YoY to 26.5%, suggesting improving operating efficiency.
- Results negatives: 1) Provision coverage dropped 4.7ppt QoQ to 165.2%, lower than JSBs’ average of 193%. NPL balance rose 3% QoQ on faster formation, yet NPL ratio was unchanged at 1.72%. There might be limited room to further lower credit cost until the Bank builds a more comfortable provision buffer. 2) 2Q19 NIM stayed flat at 1.96%, as lower interbank funding cost was offset by higher deposit cost amid deposit competition. Loan yield retreated 6bp HoH, due to lower yield for retail loans and discounted bills. 3) CET-1 and total CAR fell 19bp/36bp QoQ to 8.58%/12.27%. The Bank has issued RMB 40bn CB in Mar 2019, but conversion may take time given its below-book valuation.
- Maintain BUY and lower TP to HK$5.4. CITICB currently trades at 0.4x FY19E P/B, 22% below its past 5-year mean of 0.51x. We maintain earnings forecast unchanged, but trim our TP to HK$5.4 from HK$5.9, given a higher COE assumption of 16.8% and adjusted HK$/RMB exchange rate of 0.897. We await further information from its results briefing at 9:30am today.
