20220426-招银国际-China_Financials_Weekly_Deposit_rate_cuts_to_support_NIM_24页_2mb

报告摘要

China Financials Weekly Summary

Core Content Overview

This report provides an analysis of the performance and outlook for the banking and insurance sectors in China, highlighting key trends, regulatory impacts, and investment recommendations. It also includes valuation metrics and trading bands for various financial institutions.

Main Points and Key Information

Banking Sector

Deposit Rate Cuts: Major banks are expected to cut deposit rates, particularly term deposit rates, to reduce funding costs and support Net Interest Margin (NIM). In Shanghai, the 2-year and 3-year term deposit rate ceilings have been reduced by 10 bps to 2.75% and 3.4%, respectively. The 2-year certificate of deposit rate is expected to drop to 2.8%, while the 3-year rate to 3.45%.
Impact on NIM: The reduction in deposit rates is expected to alleviate pressure on NIM compression and slightly improve profitability. With total RMB deposit reaching 243.1 trillion in Q1 2022 (67% term deposits), a 10 bps cut by 50% of banks could save approximately RMB 80 billion, equivalent to 2.7% of the sector's pre-tax profits.
Provision Coverage: Regulators are encouraging state-owned banks to tolerate higher Non-Performing Loan (NPL) ratios and reduce provision coverage to maintain profit growth. The allowance to total loan ratio and provision coverage ratio are expected to not fall below 2.5% and 150%, respectively.
Sector Sensitivity: Sensitivity analysis shows that PSBC and ABC are more sensitive to changes in the allowance to total loan ratio, while BOC and BoComm have less capacity to release "reserved profit" from provisions.
Investment Recommendations:
- Buy: 1658 HK (PSBC), 939 HK (CCB), 601229 CH (BOSH), 601658 SH (PSBC-A), 601939 SH (CCB-A), 601601 CH (CPIC), 601318 CH (Ping An)
- Hold: 600000 CH (SPDB), 601577 CH (BOCS), 601077 SH (CQRCB)
- Sell: 601336 CH (NCL), 601319 CH (PICC Group)

Insurance Sector

Life Insurers: Life insurers are expected to report weak 1Q22 results due to lower investment income and slow new business momentum. The A-share market decline and unfavorable product mix are contributing factors.
Private Pension Plan: The State Council introduced a private pension plan with an annual contribution cap of RMB 12,000, similar to previous tax-deferred pension schemes. However, the near-term impact is expected to be limited due to low participation in pilot programs.
P&C Insurers: Property and casualty (P&C) insurers are expected to outperform life insurers in the short term. PICC P&C (2328 HK) is highlighted as a top pick due to strong premiums growth and improving underwriting profitability.
Investment Recommendations:
- Buy: 2328 HK (PICC P&C), 2628 HK (China Life), 2601 HK (CPIC), 1336 HK (NCL), 966 HK (Taiping), 1339 HK (PICC Group), 6060 HK (Zhong An)
- Sell: 601628 CH (China Life), 601319 CH (PICC Group)

Valuation Metrics

Banking Industry Valuation (FY22E and FY23E)

Ticker	Name	Price (LC)	Rating	Target Price	Upside	P/E (x)	P/B (x)	Dividend Yield (%)
1658 HK	PSBC-H	6.41	Buy	8.40	31%	6.8 / 6.3	0.9 / 0.8	4.4% / 4.8%
939 HK	CCB-H	5.69	Buy	8.10	42%	4.4 / 3.9	0.5 / 0.5	6.9% / 7.6%
600000.CH	SPDB-A	8.09	Hold	9.34	15%	4.1 / 3.3	0.4 / 0.4	6.6% / 8.2%
601229.CH	BOSH-A	6.69	Buy	9.04	35%	3.9 / 3.4	0.5 / 0.4	7.4% / 8.5%
3618 HK	CQRCB-H	3.08	Hold	2.80	-9%	3.4 / 3.2	0.3 / 0.3	8.7% / 9.5%
601577.CH	BOCS-A	7.48	Hold	8.32	11%	3.7 / 3.3	0.5 / 0.5	6.7% / 7.5%
601658.SH	PSBC-A	5.60	Buy	7.07	26%	6.0 / 5.5	0.7 / 0.7	5.0% / 5.5%
601939.SH	CCB-A	6.24	Buy	7.50	20%	4.8 / 4.3	0.6 / 0.5	6.2% / 6.9%
601077.SH	CQRCB-A	3.93	Hold	3.60	-8%	4.4 / 4.0	0.4 / 0.4	6.8% / 7.4%

Insurance Industry Valuation (FY22E and FY23E)

Ticker	Company	Price	Rating	Target Price	Upside	P/BV (x)	P/E (x)	Dividend Yield (%)
2318 HK	Ping An	52.65	Buy	81.40	55%	0.9 / 0.8	6.8 / 6.1	5.8% / 6.6%
2628 HK	China Life	11.94	Buy	18.18	52%	0.5 / 0.5	4.8 / 4.5	7.3% / 7.9%
2601 HK	CPIC	18.50	Buy	30.49	65%	0.6 / 0.5	5.1 / 4.5	9.6% / 10.9%
1336 HK	NCL	22.40	Buy	32.35	44%	0.5 / 0.4	3.5 / 3.1	8.7% / 9.9%
966 HK	Taiping	9.51	Buy	11.48	21%	0.3 / 0.3	3.9 / 3.5	7.7% / 8.6%
1339 HK	PICC Group	2.55	Buy	3.58	40%	0.4 / 0.4	7.9 / 6.9	4.4% / 5.0%
601318	Ping An	46.46	Buy	67.56	45%	1.0 / 0.9	7.3 / 6.5	5.5% / 6.2%
601628	China Life	26.50	Sell	18.10	-32%	1.4 / 1.3	12.9 / 12.0	2.7% / 2.9%
601601	CPIC	22.22	Buy	30.37	37%	0.8 / 0.8	7.3 / 6.5	6.6% / 7.5%
601336	NCL	35.47	Sell	26.85	-24%	0.9 / 0.8	6.6 / 5.9	4.6% / 5.2%
601319	PICC Group	4.51	Sell	3.72	-18%	0.8 / 0.8	7.9 / 6.9	4.4% / 5.0%

Key Figures and Trends

NPL and Provision Strategy: Regulators are allowing SOEs to increase NPL ratios and reduce provision coverage to support profit growth.
Pension Plan Impact: The new private pension plan is expected to have a limited short-term impact on the insurance sector.
Performance of P&C Insurers: P&C insurers are performing better than life insurers, with PICC P&C (2328 HK) as the top pick.
Market Conditions: Weak investment returns and slow new business growth are affecting life insurers' performance in Q1 2022.
Valuation Metrics: The report includes P/B, P/E, and other valuation indicators for both banking and insurance sectors, highlighting the relative value of different stocks.

Conclusion

The report suggests that the banking sector is benefiting from deposit rate cuts and regulatory flexibility in NPL management, which are expected to support NIM and profitability. Life insurers face challenges due to market conditions and slow new business growth, while P&C insurers are more resilient and show better performance. The new private pension plan is anticipated to have a long-term positive impact but limited near-term effects. Investment recommendations are based on valuation metrics, earnings potential, and sector performance.

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