ABC reported 9M19 net profit of RMB 180.7bn, up 5.3% YoY and accounting for 85.5%/86.0% of CMBIS/consensus full-year estimates. In 3Q19, PPOP declined by 2.3%% YoY, due to lower non-interest income (-4.9% YoY) and higher opex (+4.5% YoY). However, the stronger-than-peers provision buffer enabled the Bank to set aside less impairment charges (-14.9% YoY) and ensure a pick-up in bottom-line earnings growth to 6.1% YoY (vs 4.9% YoY in 1H19). 9M19 annualized ROE fell 1.2ppts YoY to 14.6%.
- Results positives: 1) NIM widened 1bp QoQ by our estimate, likely on decent management in funding cost and adjustment in liability structure. ABC’s market-based funding (incl. interbank, debt, NCD) was up 5.5% in 3Q19. 2) Loan growth remained healthy at 2.8% QoQ, stronger than other SOE banks that disclosed 3Q19 results so far. Loans extended to county area saw faster growth (3.1% QoQ) than that of total loans. 3) Solid asset quality trend. The overall NPL ratio slid 1bp QoQ to 1.42%, the 13th consecutive quarterly decline. In particular, NPL ratio of county area banking business fell 7bps QoQ to 1.75%. Provision coverage climbed 2.9ppt QoQ to 281.3%, the highest among Big-4 banks, offering greater room to reduce credit cost. 4) Capital adequacy improved. CET1/tier-1/total CAR edged up by 6bps/83bps/62bps QoQ to 11.19%/12.50%/16.10%, following the RMB 120bn perpetual bonds issuance.
- Results negatives: 1) 3Q19 revenue declined 0.2% YoY, as trading and investment return dropped 40% YoY due to decrease in net gain on principal guaranteed WMPs, while net interest income and net fee income were largely stable. 3) 3Q19 opex rose 4.5% YoY, leading to a higher CIR of 32.7%. 3) Deposits growth was soft at 1.0% QoQ, slower than loan growth, thus LDR rose 1.2ppts to 71.2%.
- Maintain BUY and raise TP to HK$ 4.7. ABC-H currently trades at 0.58x FY19E P/B, 8% below its past 5-year mean of 0.63x. We kept our earnings forecast unchanged and rolled forward the valuation basis to FY20. Our new HK$ 4.7 TP is derived from 0.78x target P/B and FY20E BVPS of RMB 5.4.
