CCB’s 1Q20 net profit picked up 5.1% YoY to RMB80.9bn, accounting for28.8%/29.7% of CMBIS/consensus full-year estimates. Earnings growth wasthe fastest among Big-5 SOE banks reported so far, thanks to robust assetexpansion as management attempted to seize quality projects and lock in profitearlier. CCB should face less-than-peers earnings downside, given front-loadingof new loans and benign NPL formation.
Results positives: 1） Strong balance sheet expansion. Loan growthaccelerated to 6.4% QoQ, with 3.6%/8.0% QoQ growth in retail/corporateloans. Deposit growth also sped up to 7.3% QoQ （vs 5.5% QoQ in 1Q19）。
　　Management attributed the robust loan extension in 1Q20 to both the Bank’sown plan to lock in profit earlier and anti-epidemic related credit support. 2）Asset quality stayed healthy. NPL ratio was flat at 1.41%, as NPLformation moderated to 0.63%. Impairment charges was prudent （+12.8%YoY）， boosting provision coverage by 2.6ppt QoQ to 230.3%. However,management was cautious towards future asset quality trend, and expectedcontinued risk exposure in 2Q20. 3） Effective tax rate fell 1.0ppt YoY,given increased investments to tax-free govt bonds. 4） CIR was down1.2ppt YoY to 20.9%.
Results negatives: 1） 1Q20 NIM declined 10bp YoY （5bp QoQ by ourestimate） to 2.19%, mainly on deposit rate hike （+7bp YoY） and lowerinvestment yield （-5bp YoY）。 We believe lower NIM was also due to higherallocation to interbank assets, as the Bank tried to monetize on excessshort-term funding amid abundant liquidity by quarter-end. Managementanticipated 10bp YoY full-year NIM contraction but the magnitude of QoQdecline will narrow. 2） Net fee income growth slowed to 5.5% YoY from11.6% YoY in FY19, likely due to sluggish offline payment and consumptionrelated fees during COVID-19’s outbreak. 3） Capital ratio weakened, asCET1 and total CAR slid 13bp and 31bp QoQ to 13.75% and 17.22%,respectively.
Maintain BUY and lower TP of HK$8.70. To factor in NIM pressure amidmonetary easing, we lower FY20-21E NIM forecasts by 4-5bp and reducemid-term ROE assumption to 12.4% （from 12.8%）。 Our new HK$8.70 TP isbased on GGM-derived target P/B of 0.85x and FY20E BPS of RMB9.2.