1Q19 results in line with our expectations
1Q19 revenue rose 8.4% YoY to Rm178.8bn and attributable netprofit grew 4.2% YoY to Rmb76.9bn （Rmb0.31/sh） largely in line withour expectations. Revenue, profit, B/S expansion, asset quality andcapital adequacy ratio remained solid and stable. NIM fell YoY, in linewith our expectation.
Trends to watch
End-1Q19 balance of total assets, loans and deposits rose 4.2%,3.2% and 5.5% compared with early-2019. CCB remained prudent inits operations and its market share in deposits slightly rose. Corporateand retail loans accounted for 71% and 29% of incremental loans.
NIM remains largely stable QoQ and fee income rapidly grows. 1Q19NIM was 2.29% （-6bp YoY and +13bp QoQ）。 The YoY decline in NIM isin line with expectation given falling asset pricing and increasingcompetition for liabilities. Net fee income increased 13.4% toRmb43bn （24% of total revenue） driven by bank cards, electronicbanking, and the agency business.
Asset quality and capital adequacy ratio remain solid. NPL ratestayed flat QoQ at 1.46% and NPL coverage rose to 214%. Weestimate annualized NPL formation rate at 0.70%, higher than 0.44%in 1Q18 due possibly to changing classification standards. Core T1CAR stayed high at 13.83%, the highest among listed banks.
Earnings forecast
We leave our 2019 and 2020 profit forecasts unchanged.
Valuation and recommendation
CCB-A/H is trading at 0.89x and 0.74x 2019e P/B. Maintain BUY andTP at Rmb8.34 and HK$9.43, implying 1.00x and 1.00x 2019e P/B and13% and 35% upside.
Risks
Increased macroeconomic volatility; sharp decline in home prices;competition from traditional banks and new entrants.