On 28 Aug, CCB reported 1H19 net profit of RMB 154.2bn, up 4.9% YoY and accounting for 57.0%/58.4% of CMBIS/consensus full-year estimates. 1H19 PPoP had a decent growth of 6.7% YoY. Net interest income rose moderately by 4.6% YoY as margin narrowed, yet non-interest income (incl. fees, trading gains, and investment return) picked up 12.8% YoY. Thanks to slower expansion in opex and impairment charges, bottom-line earnings grew faster at 5.5%% YoY in 2Q19 (vs 4.2% YoY in 1Q19). 1H19 annualized ROE declined 1ppt YoY to 15.9%, still the highest of the Big-4 banks. We initiate coverage on CCB A-share with BUY rating.
- Results positive: 1) 1H19 net fee income was up 11.1% YoY, driven by bank card, wealth management, and electronic banking services. As a result, CCB’s non-interest income as of total revenue increased 1.5ppt YoY to 27.2%; 2) Asset quality continued to improve, as NPL ratio fell 3bp QoQ to 1.43% and provision coverage climbed 3.8ppt to 218%. However, we note that overdue loans rebounded 18.2% HoH, and we would seek for management’s explanation during results briefing. 3) Credit growth was prudent. The Bank maintained a stable growth in mortgage (+5.3% HoH) while reduced personal consumption loan (-17.1% HoH). Lending to utility and construction segments, and discounted bills accounted for near 50% of new corporate loans. 4) Capital position remained strongest in the sector, as CET 1/total CAR only slid 13bp/8bp QoQ to 13.7%/17.1% due to appropriation of cash dividend in 2Q19.
- Results negative: 1) 2Q19 NIM contracted 4bp QoQ to 2.25%, as liability cost went up faster than asset yield. Given higher proportion of deposit funding, CCB may not benefit as much as most joint-stock peers during monetary loosening, but we believe the weaker margin trend was within expectation. 2) Proportion of demand deposit fell 0.5% HoH to 53.1%, leading to rising deposit cost thereby smaller net interest spread. 3) Asset growth slowed to 0.8% in 2Q19 from 4.2% in 1Q19, as interbank assets pulled back 17% QoQ.
- Initiate CCB-A with BUY rating and RMB 8.8 TP. We expect a positive share price reaction to 1H19 results. CCB-A currently trades at 0.83x FY19E P/B, in line with its past 5-year mean. Our TP of RMB 8.8 is based on GGM-derived target P/B of 1.05x and FY19E BPS of RMB 8.3.
