20180212-兴业金融证券-Banks__FY17_Results_Preview_22页_661kb

报告摘要

Summary of the Document

Core Content

The document is a comprehensive analysis of the performance and outlook for Chinese banks, particularly focusing on their FY17 results and future prospects. It provides insights into earnings growth, net interest margins (NIM), asset quality, balance sheet expansion, and valuation trends. The report is issued on 12 February 2018 and is part of a financial services sector update by RHB.

Main Views and Key Information

Sector Outlook

Rating: OVERWEIGHT (maintained) for Chinese banks due to continuous earnings growth and undemanding valuations.
Earnings Growth: The sector is expected to see a full-year profit growth of 4.4% for FY17, up from 0.9% in FY16, driven by healthy credit growth and easing asset quality pressure.
NIM Trends: NIMs are expected to show a moderate quarter-on-quarter (QoQ) expansion in 4Q17, with the Big-4 banks likely to see a 2-3bps widening. Smaller banks may see weaker NIM trends due to higher funding costs.
Liquidity Conditions: Improved liquidity in January due to RRR cuts and faster loan re-pricing may support a faster NIM rebound in 1Q18F.
Asset Quality Recovery: Continued improvement in asset quality is expected, with most banks reporting flat or falling non-performing loan (NPL) ratios. However, credit costs may not decline significantly as banks build up provision buffers.
Big-4 Banks and CMB: These banks are expected to show better NPL trends due to more stringent recognition standards.
Property Developers: There is caution regarding potential rebounds in NPLs to property developers due to tightened financing and control of household leverage.
Balance Sheet Expansion: Asset growth is expected to slow down in FY17, ranging from -4% to 10%, compared to 8-30% in FY16. The Big-4 banks are expected to gain a larger share of credit supply.
Valuation: Chinese banks are undervalued compared to global peers, with a 26% discount to A-share counterparts. The ROE-P/BV matrix is considered attractive, and valuations are expected to improve with south-bound inflows.
Target Price Adjustments: The target prices for the Big-4 banks are raised by 13-23% due to higher ROE forecasts and lower cost of equity (CoE) assumptions.

Top Picks

Agricultural Bank of China (ABC): BUY with a target price of HKD5.80, representing a 40.4% upside from the current price of HKD4.13.
Bank of China (BOC): BUY with a target price of HKD5.90, a 41.5% upside from the current price of HKD4.17.

FY17 Results Calendar

ABC: 22-Mar-2018
CMB: 23-Mar-2018
CITIC: 26-Mar-2018
ICBC: 27-Mar-2018
CCB: 27-Mar-2018
BoCom: 29-Mar-2018
MSB: 29-Mar-2018
BOC: 29-Mar-2018

Valuation Metrics

P/E (2018F): Ranges from 4.6x to 9.3x, with ABC at 5.8x and BOC at 5.9x.
P/BV (2018F): Ranges from 0.5x to 1.46x, with ABC at 0.71x and BOC at 0.63x.
Dividend Yield (2018F): Ranges from 3.2% to 6.2%, with ABC at 5.7% and BOC at 5.4%.

Key Risks

Faster-than-expected NPL formation
Rising bond market defaults
Correction in China's property market

Financial Highlights

Net Interest Income (NII): Expected to grow by 6.9% in FY17.
Net Profit: Projected to rise by 4.4% for the sector.
Loan Growth: ABC is expected to achieve the fastest loan growth at 11% YoY.
LDR (Loan to Deposit Ratio): ABC has the lowest LDR among the Big-4 banks.
LLC (Loan Loss Coverage): ABC has the highest LLC ratio among the Big-4 banks.
Funding and Capital: The Big-4 banks have stronger funding and capital positions, which supports their performance and valuation.

Figures and Data

Figure 1: Highlights the more stringent NPL recognition by the Big-4 and CMB.
Figure 2: Shows the higher exposure of MSB and CITIC to property development loans.
Figure 3: Summarises the FY17 earnings preview for all banks.
Figure 4: Shows the FY17 results calendar.
Figure 5: Illustrates the deceleration in WMP growth to 1.7% in 2017.
Figure 6: Shows the decline in WMPs to interbank and corporate investors.
Figure 7: Highlights the decline in interbank funding proportion.
Figure 8: Shows the shrinking of NSCA investments.
Figure 9: Shows changes in valuation assumptions.
Figure 10: Compares the ROE-P/BV matrix of Chinese banks with global peers.
Figure 11: Compares A-share and H-share valuations.
Figure 12: Provides a valuation summary for banks under coverage.

Analyst and Contact

Analyst: Terry Sun, CFA
Phone: +852 2103 5842
Email: terry.sun@rhbgroup.com

Financial Model and Assumptions

ROE: 12.3%
COE: 11.5%
Long-term growth rate: 3.0%

Conclusion

The report maintains an OVERWEIGHT rating on Chinese banks, highlighting their attractive valuations and improved earnings prospects. The Big-4 banks and ABC are the top picks due to their strong fundamentals and better performance outlook. The report suggests that the sector is well-positioned for recovery, supported by financial deleveraging, improved macroeconomic conditions, and the potential for south-bound inflows.

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