ICBC’s FY19 net profit rose 4.9% YoY to RMB312.2bn, in line with CMBIS and consensus estimates. 4Q19 earnings growth slowed to 4.2% YoY from 5.0% YoY in 9M19, due to weaker fee income and higher opex. As such, full-year ROE declined 0.6ppt YoY to 13.1%. Dividend payout was unchanged at 30%.
- Management guided for stable business trend despite COVID-19. During results briefing, ICBC’s management indicated credit demand has been recovering with resumption of work and production since Mar, and the Bank has adequate project reserves on hand. Asset quality may suffer from a temporary hit, mostly from credit card and consumption loans, but full-year impact will be controllable. Asset quality of MSE loan remained solid so far, with <5% of MSE clients applied for extension in loan repayment.
- Results positives: 1) 4Q19 asset quality remained healthy, as NPL ratio fell 1bp QoQ to 1.43% and provision coverage climbed 1.2ppt to 199.3%. NPL recognition was stringent, with NPLs equivalent to 1.3x >90day overdue loans. 4Q19 impairment charges was down 7.7% YoY, offering a support to bottom-line earnings. 2) Loan mix further leaned toward retail. Growth of retail loans (+13.3% YoY) outpaced that of corporate loan (6.1% YoY) in FY19, and its proportion increased 1.5ppt to 38.1% of total loans. However, management said that corporate loans will be key driver for credit growth in 1Q20, thanks to favourable policy on infrastructure and manufacturing sectors. 3) Capital position was strengthened. CET1/tier-1/total CAR edged up 27bp/11bp/12bp QoQ to 13.2%/14.3%/16.8%.
- Results negatives: 1) 4Q19 NIM slid 1bp QoQ to 2.20%, and FY19 NIM narrowed 6bp YoY to 2.24%. This was mainly due to significant rise in liability cost (+11bp YoY), yet only moderate expansion in asset yield (+3bp YoY) in FY19. In particular, deposit cost hiked 14bp YoY. 2) Loan growth was subdued at 0.6% QoQ in 4Q19, likely on ICBC’s falling risk appetite amid mounting credit risks. Total deposits fell 1.7% QoQ, as the Bank optimized deposit mix by cutting higher-cost structured deposits. 3) 4Q19 fee income retreated 1.9% YoY, on less revenue from trust & agency businesses and possible lower fee rate under govt’s window guidance.
- Maintain BUY and TP of HK$7.50. ICBC trades at 0.62x FY20E P/B, 10% below its past 5-year mean. We kept earnings forecast unchanged, and our HK$7.50 TP is derived from 0.89x target P/B and FY20E BPS of RMB7.58.
