Sunday, September 1, 2013

Agricultural Bank of China : Leading earnings from laggard (DBSV)

Agricultural Bank of China
BUY HK$3.29
HSI : 21,525
Price Target : 12-Month HK$4.63 (Prev HK$4.59)
Leading earnings from laggard

Similar to other banks, 2Q earnings beat forecasts
Unlike other banks, we have more faith in ABC’s earnings sustainability
Capital remains borderline but we do not foresee equity dilution risk
Reiterate BUY for this non-consensus top pick

Earnings beat estimates like other banks. Like most Hshare banks, ABC reported upbeat 2Q13 net profit figures. The bank’s 2Q13 net profit gained 22% to Rmb45.3bn, and beat our estimates by 12% and a Bloomberg survey by 8%. ABC’s 1H13 net profit made up 57.5% of consensus full year forecast. Key positive surprises were fees, cost efficiency, and credit costs. Capital was the only blemish in this set of results, as ABC’s core T1 CAR and T1 CAR remain lower than Big 4 peers at 9.11%.

Unlike other banks, sustainability is not an issue. Unlike other H-share banks, ABC’s earnings momentum should be sustainable. We do not foresee a spike in future credit costs from 1H13’s 67bps, as ABC’s < 90 day overdue loans only edged up 3% hoh during 1H13. The bank’s NPL amount was largely flat during 1H13, with no substantial write offs.

Reiterate BUY. ABC is our non-consensus pick. We like the bank’s smaller exposure to Eastern China and nonstandard WMPs. ABC is also a laggard, due to stake disposal by Capital Group and relative capital weakness vs. the other Big 4 banks. We don’t foresee equity raising risk, however, even after assuming structural ROE declines in the longer run. We reiterate our BUY call, with slight increases in our EPS forecasts and TP. We value ABC at HK$4.63 (1.36x FY13F P/BV), which offers 40% upside.

Source/Extract/Excerpts/来源/转贴/摘录: DBSV-Research,
Publish date: 29/08/13

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