HSI : 21,705
Price Target : 12-Month HK$4.34 (Prev HK$ 4.28)
Bank on high yields
Tweaked up estimates after positive 2Q
BOC saw a moderate increase in overdue loans
Capital is relatively low, but dividend yields can still be relatively high
Maintain BUY for attractive yields
Tweaked up estimates after positive 2Q earnings. BOC’s 2Q13 net profit grew 17% yoy to Rmb40.9bn, which was 14% above our estimate and 7% above a Bloomberg survey mean. Key positive surprises to our estimate were NIM, operating costs, and provisions. We have nudged up our FY13-14F EPS forecasts by 2- 4% to factor in better NIM and operating cost trends. However, we remain cautious on BOC’s future provisions, as there was a moderate increase in the bank’s overdue loans.
Moderate increase in overdue loans. Among the Big 4 banks, we are more cautious on BOC’s NPL formation in the near term. The bank’s < 90 day overdue loans increased moderately at 23% hoh, which is the quickest among the large caps. Meanwhile, the bank’s rapid loan growth in 2009 and higher exposure to Eastern China are still potential potholes. We would be less concerned if macro indicators improve.
Maintain BUY for yields. BOC’s appeal is its dividend yields, which should be at the high end within the sector, even if we factor in a slight decline in payout due to BOC’s lower T1 capital adequacy. We maintain our BUY call, and expect positive upcoming macro updates to be key catalysts. We have raised our DDMbased TP to HK$4.34 (1.01 FY13F P/BV).
Publish date: 30/08/13