Saturday, September 21, 2013

China Merchants Bank : Key Takeaways From NDR; Second Strategic Transformation On Track With Capital Concerns Removed (UOBKH)

China Merchants Bank
Share Price HK$14.80
Target Price HK$15.60
Key Takeaways From NDR; Second Strategic Transformation On Track With Capital Concerns Removed

We recently hosted a NDR with CMB for investors generally interested in the bank’s Second Strategic Transformation, capital adequacy and asset quality outlook. In our view, the bank is likely to deliver faster growth after the capital constraint is removed with an increasing mix in the MSE business. That said, we maintain HOLD as our target price of HK$15.60 implies only a 5% upside from the current price. Entry price: HK$14.00.


What’s New
• We recently hosted a NDR with China Merchants Bank (CMB) and investors were generally interested in the capital adequacy, asset quality outlook and CMB’s longer-term strategy going forward.

Essentials
• Second Strategic Transformation remains the key focus. CMB will continue to implement its core strategy of a Second Strategic Transformation, which targets to increase: a) capital efficiency, b) risk management level, c) operating efficiency, and d) risk-based pricing. As part of the strategy, further strengthening the retail banking business is one of the most important steps as this could help transform the bank into a more capital-efficient growth model. Note that currently two-thirds of its non-interest income (ie minimal capital consumption) is contributed by the retail banking business.

• In addition, CMB will continue to grow the micro and small enterprise (MSE) segment as it is likely to maintain higher pricing power. As at 1H13, MSE loans accounted for 35% of its total retail loans.

• Sufficient capital post rights issue. With the H+A rights issue to be fully completed in early-October, CMB believes it will be able to meet the new capital requirement by 2018 (tier-1 ratio: 8.5%; CAR: 10.5%). In our view, we do not expect further capital needs in the medium term as: a) we expect the tier-1 ratio to reach 9.4% after the rights issue, and b) the increasing focus on retail banking is likely to preserve more capital going forward.

• Net interest margin likely to be stable. Assuming no new interest rate liberalisation measure in 2H13, NIM trend is likely to remain stable on the back of: a) almost all loans have been repriced as at 1H13 after the interest rate cut last year, b) the bank continues to see stable loan pricing power, and c) the strategy to increase MSE loan mix is likely to support NIM. Note that the bank on average could price MSE loans at 20-30% above the benchmark rate.

• Manageable asset quality risk. While CMB maintains one of the lowest NPL ratios (1H13: 0.71%) in the sector, it expects to see more NPL pressure in 2H13 but at manageable levels. Notably, the NPL ratio of its MSE loans is still lower than the group’s NPL ratio as at 1H13. In addition, CMB continues to control its LGFV loan exposure with an outstanding balance of only Rmb80b, or 4% of total loans. Some 96% of the LGFVs are fully or mostly covered by sufficient cash flow, according to the bank.

• Financial innovations were widely discussed but initial impact is expected to be small. Financial innovations such as asset securitisation (ie ABS) were one of the hot topics during the NDR. However, CMB expects progress to be slow and approval is expected to be obtained on a case-by-case basis. In addition, the bank has no plans to sell existing NPL to AMC in the near term.

Valuation/Recommendation
• Maintain HOLD on valuation. With the capital replenishment, we reiterate our view that the bank is likely to see faster growth after the removal of capital constraint and management will also able to fully focus on growing the business in the future. In addition, we expect the Second Strategic Transformation could help the bank to develop a more capitalefficient and sustainable growth model in the future. That said, we maintain HOLD as our target price implies only a 5.4% upside from current share price. Entry price is HK$14.00.

Risk
• Risks to our target price include worse-than-expected NPL formation, and the ongoing European sovereign debt concern.



Source/Extract/Excerpts/来源/转贴/摘录: UOBKH-Research,
Publish date:18/09/13

No comments:

Post a Comment

Warren E. Buffett(沃伦•巴菲特)
Be fearful when others are greedy, and be greedy when others are fearful
别人贪婪时我恐惧, 别人恐惧时我贪婪
投资只需学好两门课: 一,是如何给企业估值,二,是如何看待股市波动
吉姆·罗杰斯(Jim Rogers)
“错过时机”胜于“搞错对象”:不会全军覆没!”
做自己熟悉的事,等到发现大好机会才投钱下去

乔治·索罗斯(George Soros)

“犯错误并没有什么好羞耻的,只有知错不改才是耻辱。”

如果操作过量,即使对市场判断正确,仍会一败涂地。

李驰(中国巴菲特)
高估期间, 卖对, 不卖也对, 买是错的。
低估期间, 买对, 不买也是对, 卖是错的。

Tan Teng Boo


There’s no such thing as defensive stocks.Every stock can be defensive depending on what price you pay for it and what value you get,
冷眼(冯时能)投资概念
“买股票就是买公司的股份,买股份就是与陌生人合股做生意”。
合股做生意,则公司股份的业绩高于一切,而股票的价值决定于盈利。
价值是本,价格是末,故公司比股市重要百倍。
曹仁超-香港股神/港股明灯
1.有智慧,不如趁势
2.止损不止盈
成功者所以成功,是因为不怕失败!失败者所以失败,是失败后不再尝试!
曾淵滄-散户明灯
每逢灾难就是机会,而是在灾难发生时贱价买股票,然后放在一边,耐性地等灾难结束
  • Selected Indexes 52 week range

  • Margin of Safety

    Investment Clock

    World's First Interactive Investment Clock