CCB’s 1Q20 net profit picked up 5.1% YoY to RMB80.9bn, accounting for 28.8%/29.7% of CMBIS/consensus full-year estimates. Earnings growth was the fastest among Big-5 SOE banks reported so far, thanks to robust asset expansion as management attempted to seize quality projects and lock in profit earlier. CCB should face less-than-peers earnings downside, given front-loading of new loans and benign NPL formation.
- Results positives: 1) Strong balance sheet expansion. Loan growth accelerated to 6.4% QoQ, with 3.6%/8.0% QoQ growth in retail/corporate loans. Deposit growth also sped up to 7.3% QoQ (vs 5.5% QoQ in 1Q19). Management attributed the robust loan extension in 1Q20 to both the Bank’s own plan to lock in profit earlier and anti-epidemic related credit support. 2) Asset quality stayed healthy. NPL ratio was flat at 1.41%, as NPL formation moderated to 0.63%. Impairment charges was prudent (+12.8% YoY), boosting provision coverage by 2.6ppt QoQ to 230.3%. However, management was cautious towards future asset quality trend, and expected continued risk exposure in 2Q20. 3) Effective tax rate fell 1.0ppt YoY, given increased investments to tax-free govt bonds. 4) CIR was down 1.2ppt YoY to 20.9%.
- Results negatives: 1) 1Q20 NIM declined 10bp YoY (5bp QoQ by our estimate) to 2.19%, mainly on deposit rate hike (+7bp YoY) and lower investment yield (-5bp YoY). We believe lower NIM was also due to higher allocation to interbank assets, as the Bank tried to monetize on excess short-term funding amid abundant liquidity by quarter-end. Management anticipated 10bp YoY full-year NIM contraction but the magnitude of QoQ decline will narrow. 2) Net fee income growth slowed to 5.5% YoY from 11.6% YoY in FY19, likely due to sluggish offline payment and consumption related fees during COVID-19’s outbreak. 3) Capital ratio weakened, as CET1 and total CAR slid 13bp and 31bp QoQ to 13.75% and 17.22%, respectively.
- Maintain BUY and lower TP of HK$8.70. To factor in NIM pressure amid monetary easing, we lower FY20-21E NIM forecasts by 4-5bp and reduce mid-term ROE assumption to 12.4% (from 12.8%). Our new HK$8.70 TP is based on GGM-derived target P/B of 0.85x and FY20E BPS of RMB9.2.
