20200831-招银国际-光大银行-601818.SH-Subdued_profit__Highlights_on_fees_and_asset_quality_4页_693kb

CMB International Securities | Equity Research | Company Update Summary

Core Content Overview

This document presents an equity research update on China Everbright Bank (601818 CH), focusing on its financial performance, key metrics, and investment outlook. It provides a detailed analysis of the bank's results for the second quarter and first half of 2020, along with revised earnings forecasts and valuation metrics.

Key Financial Performance Highlights

Profitability and Earnings

• Net profit for 2Q/1H20 declined by 29.7% YoY due to heavy provisions (+54.9% YoY).
• Net interest income grew 10.3% YoY, driven by solid credit expansion and stable net interest margin (NIM).
• Net fee income increased 17.3% YoY, primarily due to a strong recovery in wealth management service fees (+450% YoY).
• Cost-income ratio fell to 27.8% in 2Q20, a 0.7ppt YoY decrease.

Asset Quality

• NPL ratio remained flat at 1.55%, showing stability in non-performing loans.
• Provision coverage improved significantly to 186.8% in 1H20, up 4.6ppt QoQ.
• Overdue loan and SML ratio declined moderately, indicating easing NPL pressure.

Liquidity and Capital Position

• LDR (Loan to Deposit Ratio) retreated to 79.6% in 2Q20, the lowest among joint-stock banks under coverage.
• CET1 CAR and Total CAR weakened by 36bp/35bp QoQ to 8.68% / 12.74%, attributed to soft earnings and cash dividend payouts.
• A RMB30bn CB (Convertible Bonds) could potentially boost the capital ratio by 80bp upon full conversion.

Key Metrics and Ratios

Key Highlights and Negatives

Positives

• Deposit growth was solid at 4.0% QoQ.
• Asset quality improved, with NPL ratio flat and provision coverage increasing.
• Net fee income rose 17.3% YoY, led by wealth management and settlement & clearing businesses.
• Cost-income ratio decreased to 27.8% in 2Q20.

Negatives

• Loan growth slowed to 0.9% in 2Q20, from 6.7% in 1Q20.
• NIM narrowed to 2.29% in 2Q20, a 2bp QoQ decrease.
• Corporate loan and investment yields declined by 8bp/6bp in 1H20.
• Capital position weakened due to soft earnings and cash dividends.

Investment Recommendation

• Rating: BUY (Maintain)
• Target Price: RMB5.00 (Previously: RMB5.50)
• Up/Downside: +28.9%
• Current Price: RMB3.88
• Earnings Forecast Adjustment:
  • FY20/21 earnings forecasts cut by 13-14% to reflect lower NIM and fee income, and higher credit cost assumptions.
  • Revised target P/B ratio: 0.78x (from 0.84x).
  • FY20 BVPS: RMB6.45

Strategic Insights

• The bank's wealth management subsidiary, established in Sep 2019, has driven a significant recovery in fee income.
• Credit card and retail loan growth remained muted due to COVID-19 impact.
• Provision coverage is expected to continue improving, supporting asset quality risk management.
• Capital strengthening is anticipated with the conversion of RMB30bn CB.

Additional Information

• Shareholding Structure:

  • China Everbright Group: 48.5%
  • Overseas Chinese Town: 8.0%
  • Ocean Fortune Investment: 3.1%

• Stock Data:

  • Market Cap: RMB186,923 million
  • Total Issued Shares: 39,811 million (A), 12,679 million (H)

• Share Performance:

  • 1-mth: +2.9%
  • 3-mth: +1.8%
  • 6-mth: +2.6%
  • 12-mth: +5.1%

• Analyst Certification:

  • The analyst certifies that the views expressed reflect personal opinions and are not influenced by compensation or trading activities.

• CMBIS Ratings:

  • BUY: Potential return of over 15% over next 12 months.
  • HOLD: Potential return of +15% to -10%.
  • SELL: Potential loss of over 10%.
  • NOT RATED: Not rated by CMBIS.

• Important Disclosures:

  • This report is not investment advice and should be used for informational purposes only.
  • CMBIS does not guarantee accuracy or completeness of the data.
  • The report is for the use of intended recipients only and cannot be reproduced or distributed without consent.

Conclusion

China Everbright Bank (601818 CH) experienced a decline in net profit due to increased provisions, but asset quality improved with a stronger provision coverage and lower NPL ratio. Despite slower loan growth and NIM contraction, the bank's fee income showed resilience, and capital strengthening is expected. The BUY rating is maintained with a revised target price of RMB5.00, based on updated assumptions and a lower P/B ratio. Investors are advised to consult with financial advisors and independently evaluate the investment opportunities.