Saturday, November 2, 2013

Bank of China : Earnings quality miss (DBSV)

Bank of China
HSI : 23,304
Price Target : 12-Month HK$ 4.39
Earnings quality miss

3Q net profit was slightly above
However, earnings quality was disappointing due to poor income and PPOP momentum
Slight downside to our earnings forecasts
Maintain BUY, but near term share price performance will likely lag

Net profit beat estimates but earnings quality disappoint. BOC’s 3Q net profit grew 13.6% to Rmb39.5bn, which was slightly above our forecast and consensus by 1%/2% respectively. However, earnings quality was less upbeat, as the earnings surprise was driven by lower provisions and tax expense. Income momentum and PPOP disappointed. 9M13 net profit expanded 13% to Rmb120.2bn, and made up 81% of consensus FY13 estimates.

Capital was key positive; PPOP missed forecast. The most positive read of the 3Q result was BOC’s capital adequacy, as core equity Tier 1 CAR improved to 9.52%. NPL amount also only increased marginally q-o-q, although we believe write offs or disposals helped 3Q NPL amount. The bank’s 3Q PPOP was disappointing after gaining only 12% y-o-y, which decelerated from 1H13’s 17%. The culprit was slower income momentum due to disappointment in fees and NIM.

Maintain BUY; cautious on near term relative performance. We see slight downside for our earnings forecasts for BOC. We previously preferred BOC for its resiliency against China’s financial reforms and competitive advantage in the longer run. Although these positives are still in play, BOC’s disappointing 3Q trends will likely overshadow the bank’s short term share price performance. Moreover, BOC has already outperformed YTD. We maintain our BUY call as BOC’s gross FY13 dividend yield should still be ~6.5% with more conservative assumptions. P/BV is also undemanding at 0.88x FY13F with ROE in 16-17% range. Our DDM-TP is HK$4.39 (1.07x FY13F P/BV).

Source/Extract/Excerpts/来源/转贴/摘录: DBSV-Research,
Publish date: 31/10/13

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