On 29 Aug, ICBC reported 1H19 net profit of RMB 167.9bn, up 4.7% YoY and accounting for 53.7%/54.4% of CMBIS/consensus full-year estimates. 2Q19 PPoP rose 7.1% YoY, driven by a solid net interest income (+7.5% YoY) and robust net fee income (+12.5%). Impairment charges was flat YoY, helping to offset a higher tax expense due to low-base effect in 2Q18. As a result, bottom-line earnings growth accelerated to 5.2% YoY in 2Q19 (vs 4.1% YoY in 1Q19). The Bank will hold result briefing and reverse road show on 3-4 Sep in Beijing.
- Results positives: 1) 1H19 net fee income was up 11.7% YoY, mainly driven by settlement & clearing and guarantee & commitment businesses. The Bank’s non-interest income as of total revenue increased to 24% from 21% in FY18; 2) Deposit growth was strong at 8.0% HoH, the fastest among large banks and outpacing loan growth of 5.5% HoH, therefore sending LDR down by 1.7ppt HoH to 70.4%. 3) Asset quality continued to improve, as NPL ratio fell 3bp QoQ to 1.48%, and provision coverage climbed 6.2ppt to 192%. Overdue loan and special mention loan ratio declined 7bp and 21bp to 1.68% and 2.71%, respectively. 4) Lower RWA density, as RWA grew at a slower pace (+0.7% QoQ) than that of total assets (+2.5% QoQ), likely due to faster growth in retail vs corporate loans.
- Results negatives: 1) 2Q19 NsIM contracted 4bp QoQ to 2.27%, in line with other large bank peers. Liability cost was up 10bp HoH on deposit cost hike, more than offsetting the 5bp expansion in asset yield. That said, 1H19 NIM only retreated 1bp YoY, vs 7bp YoY slip for CCB (939 HK, BUY); 2) CIR rose 0.6ppt YoY in 2Q19, possibly due to higher expense on technology development. 3) Annualized ROE in 1H19 declined 8ppt to 14.7%, given the subdued earnings growth.
- Maintain BUY and lower TP to HK$6.9. ICBC currently trades at 0.63x FY19E P/B, 10% below its past 5-year mean of 0.7x. We trim our TP to HK$6.9 from HK$7.6, given a lower sustainable ROE forecast of 12.8%, higher COE assumption of 14.0% and adjusted HK$/RMB exchange rate of 0.897.
