招银国际–China CITIC Bank:Solid 3Q19earnings on robust margin and fee trends【公司研究】

【研究报告内容摘要】

On 17Oct, CITICB reported 9M19net profit of RMB 40.8bn, up 10.7% YoY andaccounting for 86.5%/87.4% of CMBIS/consensus full-year estimates. In 3Q19,revenue saw an impressive gain of 21.3% YoY (vs 14.5% YoY in 1H19), mainlydriven by strong net interest income (+11.2% YoY), net fee income (+37.5%YoY), and trading and investment gain (+55.6% YoY). Despite a 38.9% YoYsurge in provision charges, bottom-line earnings still picked up by 12.3% YoY(vs 10.1% YoY in 1H19). 3Q19annualized ROE expanded 0.11ppt YoY to11.7%.

Results positives: 1) CITICB’s loan growth remained healthy at 3.1%QoQ, faster than system loan growth of 2.6% QoQ and total asset growth of1.0% QoQ. We believe it was primarily driven by retail loans, as the Banktargets to lift its retail loan proportion to near 60% by 2021(43% as of 2Q19);2) Asset quality was well managed. NPL formation declined 38bps QoQ to1.34%, and NPL ratio stayed flat at 1.72%. Provision coverage climbed9.7ppts QoQ to 174.8%; 3) NIM widened 2bps QoQ to 1.98%, given abetter mix of interest-earning assets and strict control in funding cost; 4) Netfee income rose 37.5% YoY, likely on strong bank card and agency servicefees; 5) Capital position improved, as CET1CAR was up 18bps QoQ to8.76%. The outstanding RMB 40bn A-share CB has entered into conversionperiod since 11Sep, and it could potentially boost CAR by 80bps with 10.2%EPS dilution.

Results negatives: 1) Deposit growth slowed to 0.4% QoQ, pushing upLDR by 2.6ppts to 97.7%. This was likely due to less deposit absorptioneffort under CBIRC’s clampdown on irregular structured deposits; 2) 3Q19opex went up 14.9% YoY, possibly on rising expenses in technologydevelopment.

Maintain BUY and RMB 6.7TP. CITICB-A currently trades at 0.68x FY19EP/B, 13% below its past 5-year mean of 0.78x and 22% lower than A-shareJSBs’ average of 0.87x. We anticipate a positive share price reaction to theoverall solid 3Q19results. Furthermore, we see rising incentives formanagement to accomplish a decent earnings track record in order tofacilitate CB conversion.