ICBC reported 9M19 net profit of RMB 251.7bn, up 5.0% YoY and accounting for 80.5%/81.6% of CMBIS/consensus full-year estimates. In 3Q19, PPOP had a decent growth of 7.5% YoY, mainly driven by strong non-interest income (+12.5% YoY) and lower CIR (-0.6ppt YoY), despite narrowing NIM. The Bank set aside higher provisions (+15.2% YoY), and bottom-line earnings growth picked up moderately at 5.8% YoY (vs 4.7% YoY in 1H19). 9M19 annualized ROE fell 0.7ppt YoY to 14.4%.
- Results positives: 1) 9M19 non-interest income rose 13.2% YoY, with double-digit growth in fee income from payment, settlement, credit card, and agency sales businesses. 2) Asset quality continued to improve. NPL ratio declined 4bps QoQ to 1.44% with benign formation ratio, and provision coverage climbed 6.1ppts QoQ to 198.1%. According to management, the deviation between worsening macro environment and solid asset quality trend was attributed to the ongoing optimization of credit allocation; 3) Loan mix further leaned toward retail, as retail loan growth (+3.2% QoQ) outpaced corporate loan growth (+1.9% QoQ) in 3Q19. 4) Capital position was strengthened. CET1/tier-1/total CAR edged up by 19bps/97bps/90bps QoQ to 12.93%/14.16%/16.65%, following the RMB 70bn preference shares and RMB 80bn perpetual bonds issued in 3Q19.
- Results negatives: 1) Deposit growth slowed to 1.0% in 3Q19 (vs 2.4% in 2Q19). But management pointed out that big banks are still in favorable position to attract deposit inflow during the implementation of new asset management rule; 2) 3Q19 NIM contracted 6bps QoQ to 2.21%. It was primarily due to rising funding cost amid deposit competition, although the impact from LPR reform is limited on overall loan yield at the moment. NIM may further narrow in 4Q19 based on guidance, but likely by a smaller magnitude. As of 3Q19, over 50% of new loans and around 20% of outstanding loans were priced by LPR.
- Maintain BUY and raise TP to RMB 7.8. ICBC-A currently trades at 0.86x FY19E P/B, slightly above its past 5-year mean of 0.8x. We kept our earnings forecast unchanged and rolled forward the valuation basis to FY20. Our new HK$ 7.8 TP is derived from 1.03x target P/B and FY20E BVPS of RMB 7.6.
