FY15 NPAT grew 0.6% YoY to RMB180.6 bn, in line with our andconsensus forecasts. 4Q15 grew 1.3% YoY to RMB27.4 bn, draggedby a decline in net interest income and a hike in credit cost
Asset quality deteriorated at a faster-than-peers pace, as we haveexpected, with a surge in NPLs/ratio while gross NPL formationalmost doubled to 2.18% in 4Q
Maintain NEUTRAL with TP of HK$2.67 given the Bank’s rapiddeterioration in asset quality albeit attractive valuation with highestFY16E dividend yield among H-share peers
Stable PPOP growth yet dragged by worse asset quality
PPOP grew 4.7% YoY in 4Q15 thanks to brisk growth in non-interestincome, while bottom line was dragged by credit cost hike of 39bps QoQto 1.21% in 4Q.
Positives: 1) Non-interest income growth quickened to 43.2% YoY in4Q15 from 26.2% in 3Q, boosted by net trading gains, robust fee incomegrowth (12.2% YoY in 4Q vs 5.0% in 3Q) and other income; 2) NIMstayed flattish QoQ at 2.54% in 4Q; 3) capital base strengthened onmilder increase in risk-weighted assets with core T1 CAR/ T1 CAR/ CARjumped 52/53/19bps to 10.24%/10.96%/13.40% in 4Q; and 4) payoutratio stayed at 30% for FY15, relatively high level as compared to peers,particularly smaller ones.
Negatives: 1) ABC recorded the largest increase in NPL balance andNPL ratio among big five banks in 4Q15. NPL balance rose 18.8% QoQ,while NPL ratio jumped 37bps QoQ to 2.39%, the highest level among Hsharepeers; 2) gross NPL formation is estimated to climb to 2.18% in4Q15 from 1.27% in 3Q; 3) special-mention loans and overdue loans over90 days increased 4.0% HoH and 23.8% HoH, respectively, in 2H15; and4) coverage ratio dropped 28.87pp QoQ to 189.43% in 4Q, although itwas still higher than most peers within our coverage.
Key risks & valuation
Key upside risks including: 1) better-than-expected asset quality; 2)smaller-than-expected NIM compression; 3) an earlier-than-expectedrecovery in economic growth. Key downside risks including: 1) a hardlandingin economic growth; 2) losing market share in county areabusiness; and 3) worse-than-expected asset quality. ABC is now tradingat 0.67x FY16E P/B and 4.85x FY16E P/E and with FY16E dividend yieldof 6.57%, considering faster deterioration in asset quality, we see limitedupside for its share price although its valuation is relatively low comparedto historical average P/B of 0.98x.