CCB’s FY19 net profit was up 4.7% YoY to RMB266.7bn, in line with CMBIS forecast and 1.1% above consensus estimate. 4Q19 earnings growth softened to 2.1% YoY from 5.2% YoY in 9M19, mainly on higher tax expense. FY19 ROE declined 0.8ppt YoY to 13.2%, but still topped SOE peers. Dividend payout ratio remained stable at 30%.
- Better positioned to withstand economic slowdown. We expect CCB to face less earnings downside risk vs sector peers, given: 1) decent provision buffer, 2) stringent NPL recognition, 3) limited credit exposure to risky industries, and 4) superior capital adequacy.
- Results positive: 1) Solid 4Q19 revenue growth of 8.0% YoY, faster than ICBC’s (1398 HK, BUY) 3.3% and BOC’s (3988 HK, BUY) 7.8%. Growth in net interest and fee income was 8.8% YoY and 6.8% YoY, respectively. 2) Asset quality continued to improve. NPL ratio fell 1bp QoQ to 1.42%, and provision coverage climbed 9ppt to 228%. CCB further strengthened NPL recognition, as NPLs covered 1.7x >90day overdue loans. The Bank should face less asset quality pressure during macro downturn, thanks to limited loan exposure to cyclical industries (manufacturing, wholesale & retail). 3) Better deposit mix with proportion of demand deposit inched up 2.1ppt HoH to 55.2%, despite a mild contraction in total deposit balance. 4) Capital position remained strongest in the sector. CET1 and total CAR stood at 13.9% and 17.5% as of 4Q19.
- Results negative: 1) 4Q19 NIM contracted 3bp QoQ to 2.24% by our estimate, and FY19 NIM narrowed 5bp YoY to 2.26%. Rising liability cost (+12bp YoY), in particular higher deposit cost (+18bp YoY), more than offset the modest gain in asset yield (+6bp YoY). 2) More conservative asset mix. Lower-yield interbank assets expanded 60.6% QoQ, likely due to the Bank’s falling risk appetite. 3) 4Q19 CIR picked up 0.5ppt YoY to 47.3%.
- Maintain BUY and TP of HK$9.10. CCB trades at 0.63x FY20E P/B, 8.7% below its past 5-year mean. We kept earnings forecast unchanged, and our HK$9.10 TP is derived from 0.89x target P/B and FY20E BPS of RMB9.2.
