20150909-招商证券_香港_-1H15_results_summary_–_well-expected_earnings_moderation_mainly_dragged_by_asset_quality_deterioration__fee_incomes_stayed_resilient_26页_1017kb

1H15 Results Summary for H-share China Banks

Core Content Overview

This summary provides an analysis of the first half of 2015 (1H15) results for H-share China banks, highlighting the key financial trends, performance variances, and valuation metrics.

Earnings Growth and Performance

• Overall NPAT Growth: The net profit after tax (NPAT) growth for H-share China banks averaged 2.5% YoY, a significant moderation from the 11.6% YoY in FY14.
• Performance by Banks:
  • ICBC, CCB, and ABC were in line with expectations.
  • BOC and BOCOM slightly beat expectations.
  • CITIC Bank and Minsheng slightly missed expectations.
• Big Four Banks: Reported sluggish earnings growth ranging from 0.3% to 1.1% YoY, with ABC having the lowest growth.
• CQRCB: Had the highest NPAT growth at 8.3% YoY, outperforming its peers.

Net Interest Income and NIM

• NII Growth: Net interest income growth slowed to 6.8% YoY in 1H15 from 11.6% YoY in FY14, driven by rate cuts and interest rate liberalization.
• NIM Compression:
  • Overall: NIM narrowed by 7bps QoQ in 2Q15.
  • Big Four Banks: Experienced a larger NIM compression of 8-14bps QoQ.
  • ICBC: Suffered the largest NIM contraction of 14bps QoQ.
  • CITIC Bank: Was the only bank with a flattish margin in 2Q15.

Fee Income

• Fee Income Growth: Fee and commission income grew by 21.9% YoY, slightly higher than the 21.2% YoY in FY14.
• Drivers: Strong growth in bank card services, trust and agency services, wealth management services, and consultancy and advisory fees.
• Outliers:
  • CQRCB: Reported the highest fee income growth at 71.9% YoY, driven by wealth management fees (+84.7% YoY), bank card fees (+95.9% YoY), and others (+120.6% YoY).
  • ABC and BOC: Had negative fee income growth at -0.4% YoY and -4.0% YoY, respectively, due to regulatory pressures and high base effects.

Cost-to-Income Ratio

• CIR Decline: The cost-to-income ratio (CIR) for all H-share China banks dropped significantly in 1H15, averaging 34.80%, compared to 46.9% in FY14.
• Operating Expenses: Grew at a slower rate of 6.2% YoY, compared to 10.9% YoY in FY14.

Asset Quality and NPLs

• NPL Deterioration: Asset quality worsened, with NPL balance and NPL ratio increasing across all banks.
• Gross NPL Formation: Rose to 1.3% in 2Q15 from 0.9% in 1Q15 and 0.8% in FY14, despite lower NPL recognition standards.
• NPL Ratio: Increased by 10bps QoQ to 1.4% by end of 2Q15.
• CITIC Bank: Reported the least increase in NPL balance and ratio due to hefty NPL write-offs.
• Minsheng: Had the highest NPL balance and ratio increase at 28.5% QoY.

Credit Cost and Coverage Ratio

• Credit Cost: Increased to 0.9% in 1H15 from 0.79% in FY14.
• Coverage Ratio: Dropped to 210.7% on average in 1H15 from 238.2% in FY14.
• Big Five Banks: Generally reported lower credit cost compared to the rest.
• BOC: Had the lowest coverage ratio at 157.37%, just above the minimum requirement of 150% by CBRC.
• Provisions: Are expected to remain high in the coming quarters due to diminishing coverage ratio and continued asset quality deterioration.

Capital Adequacy Ratio (CAR)

• CAR Decline: The core tier-1 CAR, tier-1 CAR, and total CAR declined by 14.9bps, 15.0bps, and 23.6bps QoQ, respectively.
• CAR Levels:
  • Core Tier-1: 10.3%
  • Tier-1: 10.5%
  • Total: 12.7%
• Capital Needs:
  • ABC and CQRCB are likely to need core tier-1 capital replenishment.
  • Most banks reported CAR levels above minimum requirements, indicating no immediate need for capital raising.

Valuation

• P/B and P/E: H-share China banks traded at 0.69x FY15E P/B and 4.51x FY15E P/E, significantly lower than historical averages of 1.22x P/B and 7.02x P/E.
• Dividend Yield: 6.75% for FY15E.
• Sector Rating: The sector is cautiously positive, with OVERWEIGHT rating reiterated.
• Top Pick: BOC is highlighted as the top pick.
• Notes:
  • CITIC Bank and Minsheng have under review price targets.
  • Closing prices are as of 7 Sep 2015.

Loan and Advances Breakdown

• Corporate Loans and Advances: Composed 68.23% to 70.57% of total loans across banks.
• Personal Loans: Composed 28.05% to 35.94% of total loans.
• Loan Allocation:
  • Residential Mortgage: Largest share for most banks, ranging from 19.40% to 24.53%.
  • Credit Cards: Composed 3.38% to 8.51% of total loans.
  • Real Estate: Varying allocations, with CITIC Bank at 9.35% and Minsheng at 12.80%.
• YoY Growth: Varies by industry, with Transportation, Storage and Postal Services showing the highest growth for some banks.

Key Figures and Tables

• Figure 1: Summary of H-share China banks' 1H15 results.
• Figure 2-5: NPAT growth, NII growth, and NIM changes.
• Figure 6-10: Fee income growth and non-interest income changes.
• Figure 11-12: OpEx growth and CIR changes.
• Figure 13-18: NPL balance and ratio changes.
• Figure 19-22: Credit cost and coverage ratio changes.
• Figure 23-24: CAR changes.
• Figure 25: Annual CAR requirements.
• Figure 26-28: Valuation metrics (P/E, P/B, etc.).
• Appendix I: Detailed breakdown of loans and advances by industry, with YoY growth and % of total.

Summary of Key Insights

• Earnings Growth: Moderated due to slower NII growth and higher credit costs.
• Fee Income: Remained a positive factor, with CQRCB leading in growth.
• NIM Compression: Continued due to interest rate cuts and liberalization.
• Asset Quality: Deteriorated, with NPLs rising and coverage ratios falling.
• Valuation: Attractive compared to historical levels, with OVERWEIGHT rating.
• Capital Needs: ABC and CQRCB may need core tier-1 capital replenishment.

Conclusion

H-share China banks faced moderated earnings growth and worsening asset quality in 1H15, driven by interest rate cuts and increased credit costs. Despite these challenges, fee income remained strong, and valuation appeared attractive. CQRCB stood out with high NPAT and fee income growth, while BOC was highlighted as a top pick. ABC and CQRCB may need capital replenishment, but most banks were well-capitalized.