Bank of China : Weak net interest income and deterioration in tier-1 ratio (CIMB)

Bank of China
Current HK$3.62
Target HK$3.79
3Q13: Weak net interest income and deterioration in tier-1 ratio

 Negatives outweighed positives for BOC this quarter. While asset quality remained well behaved, net interest income was relatively weak. The bank’s tier-1 ratio also dropped on the back of unexpectedly strong RWA growth.

3Q13 net profit of Rmb39.5bn was 6.3% below our forecast (lower-than-expected net interest income and higher expenses, offset by lower loan impairment charges), but beat consensus by 1.6%. 9M13 net profit was 82.4% of our full-year forecast. Our estimates are unchanged as we think net interest income should rebound in 4Q13. We reiterate our Neutral rating and HK$3.79 GGM-derived target price (0.81x FY14 P/BV).


Main positives
Asset quality indicators remained well behaved. NPLs rose 3.9% qoq (5.0% forecast), raising the NPL ratio by a modest 2bp qoq to 0.96%. Impaired loan coverage dropped to 232.9% vs. 239.3% in the previous quarter. Loan impairment charges amounted to only 23bp (vs. 34bp forecast).

Main negatives
1)Net interest income (0.8% qoq) was weaker than we forecast due to weaker-than-expected loan growth (+1.3% vs. 2.0% forecast). NII progression was further halted by the fact that higher yielding Rmb loans actually shrank (-1.8% qoq), while lower yielding non-Rmb loans grew (+10.6% qoq). NIM was flat for the quarter at 2.24%. 2) BOC’s tier-1 ratio dropped unexpectedly by 95bp qoq to 9.52%. The culprit was an unexplained 19.0% qoq growth in RWA, against overall asset growth of only 2.8%. 3) Expenses (+10.1% qoq) came in much higher than expected. This pushed BOC’s cost income ratio up to 43.5% (vs. 38.9% at 2Q13). This may partly be due to seasonal factors.

Valuation
BOC is trading at 0.86x FY13 P/BV for 16.7% ROE and 5.4x FY13 P/E for 4.6% EPS growth. Its dividend yield is 6.1%.

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