Pls see attached the full PDF research report, below is a highlight:
Investment highlights:
◆ Listed banks reported 53% bottom line growth YoY in 1~3Q whereas 3Q net profits slid 9% QoQ, confirming Chinese banks’ downward trend. 3Q earnings growth of listed banks largely tallies with our forecast. Bottom line growth slowed from 69% in 1H, or by 44% for large banks, by 100% to nil growth for mid-sized banks, and by 81% for city banks. Trading losses and provision charges against USD bond portfolios amidst global financial market volatility became the major swing factor in 3Q08.
◆ NIM squeeze was the main drag on earnings growth QoQ and may accelerate in the next two quarters. NIMs faced more pressure due to weakening loan pricing power, falling bond yields and inter-bank market yields, and more migration to term deposits. CMB witnessed the biggest NIM squeeze due to high portion of discounted bills, short bond duration and sub-debt issuance; NIMs of BoBJ, SPDB and CCB were relatively stable. NIM squeeze will accelerate as the three IR cuts will take effect from 4Q onward and the mortgage repricing on January 1, 2009, will exert pressure.
◆ Net fee income fell 12% QoQ and will continue to face challenges in the future. Due to shrinking sales of wealth management products and changes in supply of and demand for credit, YoY growth of net fee income decelerated to 34% from 56% in 1H. Lacking new drivers, the downtrend is expected to continue in the next two quarters.
◆ Asset quality remains resilient but NPL risks for the next two years are immeasurable. NPL balances remain stable while NPL ratios continue to fall. SMLs and overdue loans declined as percentage of total loans thanks to intensified collection. However, NPL risks may rise substantially, especially in 2009, if the economic slowdown is longer and deeper than expected.
◆ The worst time has yet to come; banks have to alleviate the impacts through asset expansion, cost control and risk monitoring. NIM and asset quality pressure will become more apparent in 1H09, thus calling for banks to be more proactive: focus on deposit growth to expand balance sheet; reinforce cost control by strictly linking expense growth with top/bottom line line growth; intensify risk monitoring and speed up restructuring of loans at risk.
◆ A-share banks still face downside, H-share banks may enter range-trading area. We expect banks will be line with market in November. Bank stocks have undergone a big correction as investors aggressively lowered macro expectations and confirmed the rate cut cycle had come. A-share banks have fallen 36% since September and underperformed by 10ppt, while H-share banks have plunged 38% and outperformed by 4ppt, in line with our view (Sept. 2) that A-share banks would retreat from the extra gains they made during interim results and H-share banks would be in line with the market. Macro expectations tend to be firm and A-share banks are still 10~20% higher than the entry points we suggested under the pessimistic scenario; on the other hand, this also implies that relative valuations will return to average levels. Therefore, we maintain our Neutral rating for A-share and H-share bank stocks in November.
◆ H-share: BUY CITICB and ACCUMULATE CMB. A-share: We prefer BoBJ, SZDB and CMB. 1) BoBJ has high core CAR, small exposure to risky industries and decent growth potential as it is still expanding, but the strong performance in October made its less attractive in terms of valuation. 2) CMB boasts the most resilient asset quality and we have modeled in the sharp NIM squeeze; plus, the market is well aware of the uncertainties in the WLB deal. 3) Market cap of only Rmb24bn has presented SZDB as an attractive M&A target; moreover, asset expansion may speed up with capital replenishment and opening of new branches. 4) CITICB is still a valuation call with FY09 P/B of 0.8x; 5) CCB-ICBC pair trading position worked well but the valuation gap has narrowed to 15% from 30% one week ago.
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发表于 2008-11-11 15:48
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