CCB’s earnings contraction improved notably to -4.1% YoY in 3Q20 from -26.5%YoY in 2Q20, thanks to decent PPoP growth (+7.1% YoY) and lower credit cost(-33bp QoQ). 9M20 net profit declined 8.7% YoY to RMB 205.8bn, accountingfor 86.8% of our full-year estimate. Bottom line growth is likely to pick up furtherin 4Q20, as policy guidance effects wane along with macro recovery. We awaitmore details from results briefing at 4pm today.
　　Results positives: 1) NIM expanded 2bp QoQ, (vs 10bp contraction in2Q20). As LPR has remained stable since Apr and retail credit growthaccelerates, NIM may keep rebounding in 4Q20. 2) Net fee income growthaccelerated to 3.8% YoY in 3Q20 (vs 2.9% YoY in 2Q20), mainly on strongcredit cards, e-banking, and agency service fees. 3) Deposit growth wassolid at 2.6% QoQ. CCB has little reliance on structured deposits, which isshrinking amid regulatory tightening. 4) 3Q20 cost-to-income ratio fell3.2ppt YoY to 28.0%, as the Bank managed to cut operating expenses by8.2% YoY. 5) Lower effective tax rate, thanks to rising investments to taxfreegovt bonds.
　　Results negatives: 1) Loan growth moderated to 1.4% in 3Q20 (vs 3.1%in 2Q20). Corporate loan growth was muted, and retail loans rose 3.3% QoQ.
　　Meanwhile, financial investments was up 4.7% QoQ, likely due to higherasset allocation to local govt bonds, reflecting CCB’s conservative riskappetite. 2) NPL continued to expose, yet pressure marginally eased.
　　NPL ratio climbed 4bp QoQ to 1.53%, and provision coverage slid 6ppt QoQto 217.5%. However, the magnitude of asset quality deterioration turnedsofter in 3Q20 vs 2Q20 (NPL ratio +8bp QoQ). 3) Trading and investmentgain declined 1.8% YoY in 3Q20 on bond yield hike. 4) CET1/ tier1 CARslid 1bp/ 2bp QoQ to 13.15%/ 13.86%, but total CAR rose 26bp QoQ,thanks to RMB 65bn tier2 capital bond issuance in Sep.
　　Maintain BUY and HK$7.60 TP. We keep earnings forecast unchanged.
　　Our TP of HK$7.60 is derived from 0.74x target P/B and FY20E BVPS ofRMB9.0.