Boringly solid 2Q13 results
The 2Q13 results were boringly solid. The only real negative is that qoq revenue progression is becoming more difficult, which in turn is weighing on sequential earnings growth.
2Q13 net profit of Rmb45.3bn (+22.4% yoy / -3.6% qoq) was 6.1% better than forecast and 8.0% better than consensus on lower credit cost. 1H13 results represent 53% of our full-year forecast. We cut our FY13-15 EPS estimates by 3.5%-3.6% (driven by a NIM cut, as 2Q13 NIM was weaker than expected). We reiterate our Outperform rating and HK$4.14 GGM-derived target price (1.18x P/BV). Catalysts include improving macro data and better asset quality.
Harder to raise revenues
After an exceptionally strong first quarter, fees declined by 16.9% qoq in 2Q13. It is difficult to determine the drivers but ABC should still comfortably deliver 20% yoy fee growth in FY13. NII growth (1.6% qoq) was relatively tepid, due to a 12bp qoq NIM decline to 2.66%. This partly reflects the final impact of last year’s rate cut and also the unfavourable shift in deposits (low-cost demand deposits -3.8% qoq). Other income remained high on the back of the consolidation of ABC Life.
Asset quality largely stable
NPLs are up 1.2% qoq while the NPL ratio dropped 2bp qoq to 1.25%. Almost all geographies showed hoh declines in NPLs but in a new and thus far unexplained phenomenon, NPLs in Central China (17% of total NPLs) are up 23% hoh. Special mention loans are down 3.2% hoh while past due loans are up 7.5% hoh (the best performance of banks that have reported so far). Credit cost came in at 57bp (vs. 75bp in 1Q13) but ABC remains the best-provisioned bank in the sector (LLR to total loans at 4.30% vs. 4.31% in 1Q13).
Reiterate ABC as top pick
ABC is one of our top picks. Although revenue growth is getting harder, ABC still managed to increase 1H13 net profit by 14.7% yoy and PPOP by 12.0% yoy. It should comfortably meet our 16.3% yoy net profit and 9.2% yoy PPOP growth forecasts. Our FY13 net profit forecast is 5% above consensus and we expect modest consensus upgrades.
Publish date: 29/08/13