Saturday, November 9, 2013

Agricultural Bank of China : Strong net interest income (CIMB)

Agricultural Bank of China
Current HK$3.69
Target HK$4.66
3Q13: Strong net interest income

 ABC’s 3Q13 results were broadly in-line with our expectations but above consensus forecasts. Key features of the results were the strong rebound in net interest income, as well as another solid performance on asset quality. We comfortably reiterate ABC as one of our top picks.

3Q13 net profit of Rmb45.6bn was broadly in line with our forecast but beat consensus by 3.4%. 9M13 net profit accounted for 78.4% of our full-year forecast. We keep our estimates and HK$4.66 GGM-derived target price (1.19x FY14 P/BV) unchanged. ABC is one of our top picks and key catalysts include positive surprises on asset quality and the macro economy.


Main positives
1) Net interest income was exceptionally strong (+5.4% qoq) on the back of a 2.3% qoq loan growth and very strong 16bp qoq jump in NIM to 2.82%. It looks like the NIM expansion was primarily driven by a favourable loan mix shift towards higher-margin personal loans (+4.9% qoq versus +1% for corporate loans). In line with guidance from some of the other banks, we also do not exclude the possibility that ABC benefitted from June’s liquidity squeeze. 2) Asset quality trends remained very favourable. NPLs grew by only 1.4% qoq, and hence the NPL ratio dropped to 1.24% vs. 1.25% in the prior quarter. Both the impaired loan coverage (347.6%, up modestly qoq) and loan loss reserves to total loans (4.30%, flat qoq) stayed exceptionally strong. Credit cost (51bp) was in line with our forecast.

Main negatives
The only noticeable negative from the results was the relatively weak non-interest revenue. Fee income declined by 8.9% qoq and missed our forecast by 10.6%. Volatile trading and other revenues were also slightly weaker than expected.

Valuation
ABC is trading at 1.1x FY13 P/BV for a 21.7% ROE and 5.4x FY13 P/E for a 21.3% EPS growth. Its dividend yield is 6.6%.




Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 30/10/13

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