HSI : 23,304
Price Target : 12-Month HK$ 6.67
Profit was largely in line but earnings quality disappointed
3Q net profit was largely in line; 9M13 made up 79% of full year consensus forecast
But earnings quality was disappointing; poor PPOP trends saved by low credit costs
NIM and capital adequacy were silver linings
BUY rating supported by yields, but we prefer CCB and ABC among large caps
3Q net profit was largely in line. ICBC’s 3Q net profit of Rmb67.2bn was 7.6% higher than 3Q12, but 1%/3% below our estimate and a Bloomberg survey. NIM and credit costs were better than expected, but fees and asset growth were disappointing. 9M13 net profit amounted to Rmb205.5bn (+10.7% y-o-y), accounting for 79% of consensus and our full year FY13 forecast.
But earnings quality was disappointing. ICBC’s 3Q net profit only missed forecasts slightly, but earnings quality disappointment was larger. 3Q PPOP growth was only 8% y-oy, dragged by a slowdown in fees and asset growth. ICBC’s PPOP miss was cushioned by better than expected credit cost of 27bps. But there were moderate increases in NPL amount and ratio, thus we expect future credit costs will rebound.
There were some bright spots in the 3Q update. Capital adequacy remains a strong point for ICBC, as CET1 CAR edged up to 10.59%, the second highest among large caps behind CCB. NIM also rebounded 2bps q-o-q, likely on the back of a slight increase in loan to deposit ratio.
Maintain BUY, but prefer ABC and CCB. We see slight downside for our FY13-15 earnings forecasts, and ICBC’s dividend yield will likely lag behind peers in the near term. After the 3Q update, we prefer ABC and CCB among large caps. We still rate ICBC as a BUY, as even with slightly depressed growth outlook, the bank’s valuations are still attractive.
Publish date: 01/11/13