20131015-DBS_Group-New_loans_and_TSF_beat_forecasts_54页_975kb

Summary of Document Content

Core Content

The document provides an analysis of the performance and outlook for H-share banks in China, focusing on macroeconomic data, loan and financing trends, sector performance, and valuation metrics. It also outlines the preferred order of preference for the banks and key financial indicators for the second quarter of 2013.

Main Points

1. Loan and Total Social Financing (TSF) Performance

• New Rmb loans in September 2013 exceeded expectations at Rmb787bn, compared to a Bloomberg survey forecast of Rmb675bn and August's Rmb711bn.
• The increase was primarily driven by short-term corporate loans, which rose to Rmb321bn from Rmb147bn in August.
• Discount bills declined by Rmb158bn m-o-m.
• Mid-long term corporate loans increased by 11% m-o-m to Rmb258bn.
• Total financing for September was Rmb1.4trn, beating the estimate of Rmb1.35trn.
• Non-banking financing channels saw a slight retreat after a rebound in August.
• Trust and entrusted loans maintained high growth, while bank acceptance bills declined.
• New bank loans accounted for 56% of TSF in September, up from 45% in August.

2. Macroeconomic Indicators

• PMI was 51.1, slightly below the survey average of 51.6.
• Trade surplus was Rmb15.2bn, below the survey of Rmb26.3bn but above the prior period.
• Exports declined slightly to -0.3% y-o-y, due to a high base from September 2012.
• Imports increased by 7.4% y-o-y, slightly above the survey of 7.0%.
• CPI rose to 3.1% y-o-y, higher than the market estimate of 2.8%.
• PPI improved mildly to -1.3% y-o-y, slightly better than the survey of -1.4%.
• The 3Q GDP is expected to be higher than 2Q's 7.5%, and previous rebounds have supported H-share banks' valuations.

3. Sector Performance

• The sector rally paused after gains in July and August, due to concerns about financial liberalization and local government debt.
• Despite this, there is still potential for growth, with an expected 18% average upside for H-share banks.
• Upcoming catalysts include 3Q macro data, 3Q earnings, and LGFV audit results.

4. Preferred Order of Preference

• Top picks include CCB, ABC, and BOC for large caps.
• Mid caps include CMB, BoCom, and CQRCB.
• ICBC and Citic Bank are also listed as "Buy" with specific reasons such as high capital adequacy, deposit franchise, and low P/BV levels.

Key Information

5. Valuation Metrics

• Price as of 11 Oct 2013:

  • ICBC - H: HK$5.52
  • CCB - H: HK$6.04
  • BOC - H: HK$3.62
  • ABC - H: HK$3.65
  • BoCom - H: HK$5.76
  • CMB - H: HK$14.98
  • CNCB - H: HK$4.20
  • CMBC - H: HK$9.69
  • CQRCB - H: HK$3.94

• Target prices and upside:

  • ICBC: HK$6.60 (20% upside)
  • CCB: HK$7.81 (29% upside)
  • BOC: HK$4.34 (20% upside)
  • ABC: HK$4.63 (27% upside)
  • BoCom: HK$6.75 (17% upside)
  • CMB: HK$17.90 (19% upside)
  • CNCB: HK$4.96 (18% upside)
  • CMBC: HK$10.20 (5% upside)
  • CQRCB: HK$4.27 (8% upside)

• P/B ratios for FY13F:

  • ICBC: 1.26
  • CCB: 1.09
  • BOC: 0.83
  • ABC: 1.07
  • BoCom: 0.79
  • CMB: 1.10
  • CNCB: 0.68
  • CMBC: 1.08
  • CQRCB: 0.79

• Dividend yields:

  • ICBC: 6.0%
  • CCB: 6.4%
  • BOC: 6.8%
  • ABC: 6.4%
  • BoCom: 5.6%
  • CMB: 4.9%
  • CNCB: 4.6%
  • CMBC: 4.9%
  • CQRCB: 6.2%

Key Financial Metrics

6. Exposure to Riskier Segments

• Loans to overcapacity industries: Varies from 2.27% (ICBC) to 3.15% (CMB).
• Small and micro enterprise loans: Ranges from 9.3% (ABC) to 23.5% (CMBC).
• LGFV loans: CMB has the lowest exposure at 4.3%, while CMBC has the highest at 9.4%.
• LGFV loans with poor cash flow: Ranges from 0.09% (CMB) to 0.21% (CMBC).
• Exposure to Eastern China: Varies from 22.0% (ICBC) to 46.1% (BoCom).
• Developer loans: Ranges from 3.9% (CMB) to 18.0% (CNCB).
• Non-standard WMPs: Varies from 1.7% (BOC) to 6.8% (CNCB).

7. Asset Quality and Capital Adequacy

• Provision to loan ratio (June 2013): Ranges from 1.7% (BOC) to 4.3% (ABC).
• Provision to NPL coverage: Ranges from 223% (BoCom) to 465% (CQRCB).
• Core CAR (June 2013): Ranges from 7.9% (CMBC) to 11.0% (ICBC).
• CAR (June 2013): Ranges from 11.0% (CMB) to 13.8% (CCB).
• NPL ratio (as of 2Q13): Ranges from 0.66% (CMB) to 1.30% (ABC).

8. Earnings and Performance

• 2Q13 net profit growth:

  • ICBC: 12.6% y-o-y (+10% vs DBSV forecast, +5% vs consensus)
  • CCB: 9.8% y-o-y (+12% vs DBSV forecast, +3% vs consensus)
  • BOC: 17.3% y-o-y (+14% vs DBSV forecast, +7% vs consensus)
  • ABC: 22.4% y-o-y (+12% vs DBSV forecast, +8% vs consensus)
  • BoCom: 12.5% y-o-y (+25% vs DBSV forecast, +7% vs consensus)
  • CMB: 12.9% y-o-y (+25% vs DBSV forecast, +7% vs consensus)
  • Citic: 3.4% y-o-y (+50% vs DBSV forecast, +3% vs consensus)
  • CMBC: 18.9% y-o-y (+30% vs DBSV forecast, +8% vs consensus)
  • CQRCB: 14.5% y-o-y (+5% vs DBSV forecast, +0.4% vs consensus)

• Key surprises:

  • Positive trends: fees, credit cost, NIM, operating costs, asset growth, deposit growth.
  • Negative trends: deposits, capital, overdue loans.

Outlook and Drivers

9. Earnings Growth Expectations

• FY13-14 earnings growth is expected to be driven by:
  • Improving macroeconomic data
  • Strong loan and financing growth
  • Positive trends in NIM and credit cost
  • Stable or improving asset quality
  • LGFV audit results
  • 3Q earnings
  • 3Q macroeconomic data release

Conclusion

The H-share banking sector is showing signs of resilience despite a pause in the sector rally. The performance of new loans and TSF exceeded expectations, indicating strong demand. The upcoming 3Q GDP data is anticipated to be positive, which could further support the sector. Valuation metrics suggest that banks like CCB, ABC, and BOC are more attractive for investment, with CMB and CMBC also showing potential. Key drivers for future earnings growth include macroeconomic improvements, better asset quality, and favorable audit outcomes.