1H19 results in line with our expectations
China Construction Bank （CCB） is the first large bank to release 1H19results. Revenue rose 6.1% YoY to Rmb361.5bn （up 2.1% QoQ fromRmb182.6bn in 2Q19）， and attributable net profit increased 4.9% YoYto Rmb154.2bn （or Rmb0.62 per share）， in line with our expectations.
CCB’s results remain solid, and should offer strong investment valueamid the macroeconomic downturn. The company’s balance sheet isexpanding moderately, and asset quality remains stable. NIM slightlynarrowed as expected. Profitability and capital adequacy ratioremains high in the sector.
Trends to watch
Net interest income rose 4.6% YoY, slightly underperforming totalassets （+6.9% YoY） due to a 7bp YoY narrowing in NIM to 2.27%. Netfee income rose 11% YoY thanks to bankcard, electronic banking andagency businesses.
End-1H19 total assets rose 5.0% HoH, deposits increased 6.5% HoHand loans gained 5.5% HoH, slightly slower than sector averages.
Loan to deposit ratio was healthy at 80%. Of note, CCB’s termdeposits accounted for 59% of incremental deposits （vs. 45% inend-2018）， raising deposit costs, similar to China Merchants Bank.
Asset quality pressure is limited, in our opinion.
We believe CCB’s CAR and ROE are high among sector averages.
Financials and valuation
CCB maintains solid operations with leading performance in capital,liability, asset quality and profitability. Our earnings forecast remainsunchanged. CCB A-shares are trading at 0.83x 2019e P/B, whileH-shares are trading at 0.62x, attractive valuations, in our opinion.
We maintain an OUTPERFORM rating and target price for theA-shares at Rmb8.34 （1.0x 2019e P/B, offering 20% upside） andH-shares at HK$8.97 （0.95x 2019e P/B, offering 55% upside）。
Risks
NPL formation increasing amid economic downturn; rapid decline inNIM due to interest rate reform.