20150924-招商证券_香港_-民生银行-01988.HK-Waiting_for_the_dust_to_be_settled,_revised_TP_to_HK_6.33_11页_1mb

Minsheng Bank FY15E Outlook Summary

Core Content Overview

Minsheng Bank's financial performance and outlook for FY15E reveal a mix of positive and negative trends. The first half of 2015 (1H15) showed some resilience in non-interest income, but the overall earnings growth slowed, and asset quality concerns persisted.

Key Financial Performance Highlights

• NPAT Growth:

  • 1H15: RMB26.8bn, up 4.7% YoY, slightly below estimates.
  • 2Q15: YoY growth of 3.9%, down from 5.5% in 1Q15.
  • Full Year FY15E: Expected NPAT growth to average 2.0% YoY.

• Net Interest Income (NII):

  • 2Q15: YoY growth of 6.4%, down from 9.2% in 1Q15.
  • NIM (Net Interest Margin): Contracted 4bps QoQ to 2.33% in 2Q15.
  • Full Year FY15E: Expected NIM to narrow further to 2.27%.

• Fee Income:

  • 1H15: Grew by 36.4% YoY, contributing 32.82% to total operating income.
  • Expected FY15E fee income growth to reach 24.4% YoY, supporting revenue growth.

Asset Quality Concerns

• Gross NPL Formation:

  • 2Q15: Increased to 2.25% from 1.12% in 1Q15, the highest among H-share China banks.
  • NPL Ratio: Rose 14bps QoQ to 1.36%, despite RMB6.18bn in NPL write-offs.

• Non-Performing Loans (NPLs):

  • NPL Balance: Surged 14.7% QoQ in 2Q15 or 67.0% YoY in 1H15.
  • SMLs (Substandard, Doubtful, and Loss loans): Increased 85.9% HoH to RMB66.7bn.
  • Overdue Loans: Rose 52.2% HoH to RMB75.6bn, with those >90 days overdue increasing 78.2% HoH.

• NPLs/Overdue Loans >90 Days:

  • Dropped to 0.64% in 1H15 from 0.92% in FY14, below sector average of 0.98%.
  • Indicates potential underreporting or relaxed criteria for NPL recognition.

Credit Cost and Coverage Ratio

• Credit Cost:

  • Increased 42bps QoQ to 1.80% in 2Q15.
  • Expected to remain elevated at 1.45%, 1.35%, and 1.25% for FY15E, FY16E, and FY17E, respectively.

• Coverage Ratio:

  • Declined sharply to 162.13% in 2Q15, just above the minimum requirement of 150%.
  • Limited room for existing loan loss reserves to handle rising NPLs.

Strategic Challenges

• Shift from SME Business:

  • Minsheng shifted focus away from SMEs in 2H13 due to rising NPLs.
  • Earnings growth slowed significantly, with NPAT growth dropping to 5.4% YoY in FY14 from 12.6% in FY13 and 34.5% in FY12.

• New Growth Engine:

  • The bank has not yet found an effective new growth driver, despite efforts in areas like community and direct banks.
  • Analysts expect the search for a new business model and growth engine to take 2-3 years.

Leadership Uncertainty

• President Resignation:
  • Former President Mao Xiaofeng resigned in January 2015, and a new candidate has not been announced.
  • This uncertainty is viewed as a challenge to the bank's business strategy and future development.

Investment Outlook

• Investment Ratings:
  • Industry Rating: OVERWEIGHT (expect sector to outperform the market over the next 12 months).
  • Company Rating: BUY, NEUTRAL, or SELL, depending on the expected stock performance over the next 12 months.

Regulatory and Disclosure Notes

• Disclaimer:

  • This document is prepared by China Merchants Securities (HK) Co., Limited (CMS HK) and is for information purposes only.
  • It is not an advice, offer, or solicitation to buy or sell any security or financial instrument.

• Important Disclosures for U.S. Persons:

  • This report is for distribution to "major U.S. institutional investors" only.
  • Any U.S. recipient should use the information solely for investment decision-making through a registered broker-dealer.

• Ownership and Conflicts of Interest:

  • No material conflict of interest is reported.
  • CMS HK may rely on information barriers to control information flow.

• Compensation and Investment Banking Activities:

  • CMS HK may have investment banking relationships with the subject companies.

• Exchange Rate Risk:

  • Investments in non-U.S. dollar-denominated securities are subject to exchange rate fluctuations.

Conclusion

Minsheng Bank faces a challenging outlook in FY15E, marked by slowing earnings growth, deteriorating asset quality, and uncertainty in leadership. While fee income provides some support, the bank's credit cost and NPL issues remain significant headwinds. A new growth engine is yet to be found, and the search for a new business model is expected to take time. The bank's performance is likely to continue to be impacted by these factors in the coming quarters.