ICBC’s 1Q20 net profit rose 3.0% YoY to RMB84.5bn, accounting for 25.8%/26.6% of CMBIS/consensus full-year estimates. Key earnings drivers included robust asset expansion and better cost efficiency, despite weaker non-interest income. The Bank should be able to maintain a steady operating trend, as quality project reserves and broad customer resources back up strong credit growth and decent asset quality.
- Results positives: 1) NIM remained flat QoQ at 2.20%. Management indicated that interests on both asset and liability sides retreated in 1Q20, but they expected to see better-than-peers margin trend due to strict control on funding cost. 2) NPL ratio was unchanged QoQ at 1.43% albeit higher NPL formation, suggesting faster disposal and write-offs. Provision coverage was also stable at 199.4%. 3) Solid asset expansion of 6.6% in 1Q20, driven by 4.5% QoQ and 6.7% QoQ increase in loans and investments. Despite with COVID-19’s impact, new loan mix was relatively balanced between corporate (+5.7% QoQ) and retail (+2.6% QoQ) segments. New corporate loans were mainly allocated to regions with stronger economy, such as Greater Bay Area and Yangtze River Economic Belt. ICBC targeted to boost retail consumption loans when the pandemic wanes. 4) 1Q20 CIR declined 0.7ppt YoY to 19.4%.
- Results negatives: 1) Non-interest income fell 3.2% YoY, due to FX trading losses. Growth in net fee and commission income also softened to 2.5% YoY in 1Q20, from 7.1% YoY in FY19. 2) Capital adequacy ratio declined, as CET1 and total CAR slid 5bp and 25bp QoQ to 13.15% and 16.52%, respectively. 3) 1Q20 ROE was down 0.9ppt to 13.4%.
- Maintain BUY with lower TP of HK$7.30. We trim our FY20-21E earnings forecasts by 1.6-2.5%, as we lower fee income growth to reflect possible concessionary measures to support the real economy. Our new TP of HK$7.30 is based on GGM-derived target P/B of 0.86x and FY20E BPS of RMB7.6.
