CITICB reported solid 1Q20 PPoP/net profit growth of 13.6%/9.4% YoY (vs. 4.0% YoY consensus full-year earnings growth). This was mainly driven by strong investment gains and lower opex. On the other hand, notable NIM contraction and surge in NPL ratio were major shortcomings, and likely weigh on near-term share price performance. Having said that, 0.3x P/B with 11% ROE and 8% dividend yield represent attractive risk/reward, in our view.
- Results positives: 1) Healthy loan expansion of 3.9% in 1Q20 (vs 3.3% in 1Q19), likely driven by lending to corporate segment. 2) Deposit growth was also decent at 6.0% QoQ, the strongest quarterly growth in past three years. As such, LDR fell 1.9ppt to 96.3%. 3) Non-interest income picked up 13.6% YoY, on robust investment gains (+159.5% YoY), which more than offset weakening fee income. 4) 1Q20 cost-income ratio declined 3.3ppt YoY to 23.1%, indicating better operating efficiency. 5) Capital position improved, as CET1 and total CAR climbed 23bp/24bp QoQ to 8.92%/12.67%.
- Results negatives: 1) 1Q20 NIM slid 16bp QoQ to 1.97%, likely on rising proportion of corporate loans and bond investments in interest-earning asset mix, while the extension of higher-yield retail loans, i.e. credit card and consumption loans, were stagnant amid COVID-19’s outbreak. As a result, growth in net interest income slowed to 6.0% YoY, from 12.7% YoY in FY19. 2) NPL ratio rose 15bp QoQ to 1.80%, faster than 6bp QoQ uptick for overall banking sector in 1Q20 (according to CBIRC’s press release). However, on the back of 18.4% YoY increase of impairment charges, provision coverage edged up 2ppt to 177.4%. 3) Net fee income fell 6.7% YoY, likely due to sluggish growth in bank card fee.
- Maintain BUY and HK$5.60 TP. We keep our FY20-22E earnings forecasts and TP unchanged. CITICB is trading at undemanding 0.33x FY20E P/B, 31% below its past 5-year mean and the lowest among banks under our coverage.
