20140116-DBS_Group-Some_P_BVs_have_fallen_close_to_2SD_below_mean_61页_946kb

DBS Group Research: Equity Summary - China Banks

Core Content

This document provides an analysis of the Chinese banking sector, focusing on valuations, performance, and macroeconomic factors influencing the industry. It outlines key financial metrics, earnings trends, and market outlook for H-share banks, with a particular emphasis on valuation ratios, credit and liquidity conditions, and the impact of macroeconomic indicators.

Main Points

• Loan Growth and Credit Trends:

  • New RMB loans in 2013 reached RMB8.89trn, with expectations of RMB9.3-9.7trn for 2014.
  • Credit growth is expected to slow modestly in 2014, with outstanding RMB loans growing at 13.0-13.5%.
  • Total social financing (TSF) reached RMB17.3trn in 2013, with a forecast of RMB18.5trn for 2014, driven by non-bank financing channels.

• Macroeconomic Outlook:

  • The macro team forecasts 2014 GDP growth at 7.8% and CPI at 3%, creating a favorable environment for reform.
  • Monetary policy is expected to remain steady, with the PBOC maintaining a neutral stance on money supply and ensuring adequate liquidity.

• Valuation Analysis:

  • Some banks' price-to-book value (P/BV) have fallen close to 2 standard deviations (2SD) below the mean, indicating potential bottom fishing opportunities.
  • The average trailing 12-month P/BV dropped to 0.89x, 1.4SD below the 2-year mean of 1.08x.
  • Banks like CCB (large cap) and CMB (mid cap) are highlighted as favorites due to their strong fundamentals and better ability to compete in a liberalized market.

• Performance of H-Share Banks:

  • The document includes detailed performance data across various time frames (1 week, 1 month, 3 months, 1 year, YTD).
  • ICBC, CCB, and BOC have shown relatively strong performance compared to the HSI and HSCEI indices.
  • CMB and CMBC have shown mixed results, with some positive and negative trends.

• Key Metrics Comparison (2013):

  • Banks differ in their exposure to riskier segments, such as non-standard WMPs and developer loans.
  • CMB has the highest exposure to non-standard WMPs, while CQRCB has the lowest.
  • CMB also has the highest provision to loan ratio, indicating stronger asset quality management.

• Liquidity and Capital:

  • Liquidity ratios vary, with ABC having the highest and BoCom the lowest.
  • Capital adequacy ratios (CAR) and core CAR are used to assess the banks' financial health.
  • CQRCB and CMB have higher buffers against non-performing loans (NPL).

• Earnings and Trends:

  • 3Q13 earnings showed mixed performance, with some banks outperforming and others underperforming.
  • Net interest income (NII), net interest margin (NIM), and cost-income ratios are analyzed for each bank.
  • CMB had the best NIM and asset growth, while BoCom had the worst NII growth.

• Credit Costs and NPL:

  • Credit costs increased for most banks, with CMB showing the highest increase.
  • NPL ratios were generally stable, but some banks like CMB and CQRCB had higher NPL ratios.

• Dividend Payouts:

  • Dividend payout ratios are consistent across most banks, with ABC and BOC showing slightly lower payouts in 2012.

Key Information

• Market Outlook: The banking sector is expected to benefit from a stable macroeconomic environment and steady monetary policy.
• Valuation Trends: Some banks are undervalued, offering potential investment opportunities.
• Performance Highlights: CCB and CMB are favored for their strong fundamentals and competitive positioning.
• Credit and Liquidity: Credit growth is expected to slow, and non-bank financing channels are playing a significant role in TSF.
• Risk Exposure: Banks vary in their exposure to high-risk segments, with CMB having the highest exposure to non-standard WMPs and developer loans.

Summary Table

Bank	P/BV FY13F	P/BV FY14F	EPS CAGR 12-14 (%)	ROE FY13F (%)	ROE FY14F (%)	Dividend Yield (%)	Recommendation
ICBC - H	1.13x	0.98x	8.7	22.4	21.8	6.7	Buy
CCB - H	1.00x	0.88x	9.3	21.3	19.8	6.9	Buy
BOC - H	0.81x	0.73x	8.0	17.6	16.6	7.2	Buy
ABC - H	1.04x	0.90x	16.2	21.4	20.9	6.7	Buy
BoCom - H	0.72x	0.65x	-2.7	15.3	14.0	6.1	Buy
CMB - H	1.09x	0.94x	3.4	21.5	19.4	5.1	Buy
CNCB - H	0.64x	0.56x	13.5	17.7	16.5	5.2	Buy
CMBC - H	0.89x	0.76x	10.6	23.8	21.3	6.0	Buy
CQRCB - H	0.69x	0.62x	6.9	17.6	15.9	7.2	Buy

Conclusion

The Chinese banking sector is navigating a period of stable macroeconomic conditions and steady monetary policy. While credit growth is expected to slow, non-bank financing channels are expected to maintain strong activity. Valuation levels for some banks are near 2SD below the mean, indicating potential buying opportunities. CCB and CMB are recommended for their strong fundamentals and better positioning in the market. The document emphasizes the importance of monitoring NPL, liquidity, and capital adequacy as key indicators for assessing the sector's health.