1H19 results in line with our forecast
Agricultural Bank of China （ABC） announced that its revenue rose5.4% YoY to Rmb324.5bn in 1H19, and net profit attributable toshareholders grew 4.9% YoY to Rmb121.4bn. In 2Q19, revenue fell0.4% YoY, but net profit grew 5.5% YoY. The profit growth is in linewith our expectation.
Trends to watch
2Q19 revenue was dragged down by declines in NIM and othernon-interest income. We would watch increased competition fordeposits and rising liability costs.
Net fee income grew noticeably, with ABC’s digital transformationefforts paying off.
Asset quality was robust; lower credit cost unleashed profit.
Core Tier-1 CAR dropped 26bp QoQ to 11.13%. ROAE （reported） fell2.2ppt QoQ to 14.57%.
Financials and valuation
ABC A-share and H-share are trading at 0.68x and 0.54x 2019e P/B.
We keep our earnings forecasts unchanged, expecting net profit torise 4.9% YoY in 2019 and 5.3% YoY in 2020. We maintain our targetprice for ABC-A at Rmb4.70, implying 0.95x 2019e P/B and offering38% upside. We maintain our target price for ABC-H at HK$4.77,implying 0.85x 2019e P/B and offering 58% upside. Maintain ourOUTPERFORM ratings for ABC A-share and H-share.
Risks
NPL formation increasing amid economic downturn; rapid decline inNIM due to interest rate reform.