BoCom reported 9M19 net profit of RMB 60.1bn, up 5.0% YoY and accounting for 78%/80% of CMBIS/consensus full-year estimates. In 3Q19, revenue growth moderated to 3.5% YoY from 12.2% YoY in 1H19, as growth in net interest income (+5.1% YoY) and investment gain (-14.4% YoY) slowed down, despite stronger net fee income (+11.0% YoY). Opex was down 4.4% YoY on good cost control. However, the bank boosted provision charge by 14.7% YoY, given rising NPL formation. As such, 3Q19 bottom-line earnings remained largely stable at 5.2% YoY. 9M19 annualized ROE slid 0.2ppt YoY to 12.2%.
- Results positives: 1) NIM held up stable QoQ at 1.56%, as falling loan yield due to LPR reform was offset by better control in funding cost. Management sees margin pressure in coming quarters, but expects to keep NIM steady in 4Q19. 2) Net fee income growth accelerated to 11.0% YoY in 3Q19 on stronger wealth management-related fees, whose contribution to fee income should be roughly the same next year based on guidance. 3) Operating efficiency improved, as 3Q19 CIR dropped 3.1ppts YoY to 37.6%. 4) Capital adequacy was strengthened. CET1/tier-1/total CAR edged up by 21bps/86bps/103bps to 11.07%/12.72%/14.87% in 3Q19. Management expect further capital replenishment through perpetual bond and tier-2 capital bond, given current favorable regulation stance on banks’ debt capital raising.
- Results negatives: 1) Deposit balance declined 1.4% QoQ, pushing up LDR by 2.5ppts to 86.1%. BoCom boosted interbank liabilities by 3.8% QoQ, to take advantage of the low-interest environment. 2) Loan growth was subdued at 1.5% QoQ, mainly due to contraction in credit card loans, as the Bank proactively slowed down card issuance and tightened borrowing standards. 3) Faster NPL formation. NPL ratio stayed flat at 1.47%, but NPL formation rebounded 29bps QoQ to 1.08% in 3Q19.
- Maintain HOLD and raise TP to RMB 6.5. BoCom-A currently trades at 0.61x FY19E P/B, 9% below its past 5-year mean of 0.67x. We kept our earnings forecast unchanged, and rolled forward the valuation basis to FY20. Our new RMB 6.5 TP is derived from 0.65x target P/B and FY20E BVPS of RMB 10.1.
