ABC released a decent set of preliminary FY17 results, with accelerating earnings growth and continued recovery in assetquality. We anticipate a positive share price reaction to the bank's proposed equity issuance, as the valuation boost from thestrengthening capital position should more than offset the dilution impact to book value, in our view. ABC remains oursector Top Pick, given its strongest deposit base vs peers and solid credit growth outlook. Maintain BUY and GGM-derivedTP of HKD5.80 （30% upside）。
FY17 preliminary earnings beat market expectation. On 12 Mar, Agricultural Bank of China （ABC） announced its preliminary FY17results. Net profit rose 4.9% YoY to CNY192.9bn, in line with our forecast but 2.4% higher than the consensus estimate. Revenue wasup 6.1% YoY, mainly driven by stable loan growth of 10.3% YoY and moderate NIM expansion, in our view.
Asset quality is a bright spot. NPL balance fell 7.5% QoQ and NPL ratio slid 16bps QoQ to 1.81% in 4Q17, the third consecutive"double-decline" since 1Q17. LLC further picked up 14ppts QoQ to 208.4%, the highest among the Big-4 banks. We expect NPL ratioto further retreat in FY18, as formation moderates, while the bank may speed up NPL disposal under the new provision rule （see our 7Mar report, Differentiated Provisions To Benefit Quality Big Banks）。
A-share private placement to boost capital position. ABC also announced a capital replenishment plan by issuing up to CNY100bnequity through private placement, pending regulatory approval. Among the seven target subscribers, Huijin and the Ministry of Financewould each contribute CNY40bn. The placement could boost ABC's CET1 capital ratio by 80bps to 11.4%, but result in 6.9% EPSdilution, based on our estimate.
Maintain BUY, with our GGM-based TP of HKD5.80 unchanged. We see limited pressure on ABC's stock price from the proposedequity issuance, as both A- and H-shares are currently trading below FY17F book value （ie minimum issuance price）。