ICBC’s 1Q20 net profit rose 3.0% YoY to RMB84.5bn, accounting for25.8%/26.6% of CMBIS/consensus full-year estimates. Key earnings driversincluded robust asset expansion and better cost efficiency, despite weaker noninterestincome. The Bank should be able to maintain a steady operating trend,as quality project reserves and broad customer resources back up strong creditgrowth and decent asset quality.
Results positives: 1） NIM remained flat QoQ at 2.20%. Managementindicated that interests on both asset and liability sides retreated in 1Q20,but they expected to see better-than-peers margin trend due to strict controlon funding cost. 2） NPL ratio was unchanged QoQ at 1.43% albeit higherNPL formation, suggesting faster disposal and write-offs. Provision coveragewas also stable at 199.4%. 3） Solid asset expansion of 6.6% in 1Q20,driven by 4.5% QoQ and 6.7% QoQ increase in loans and investments.
　　Despite with COVID-19’s impact, new loan mix was relatively balancedbetween corporate （+5.7% QoQ） and retail （+2.6% QoQ） segments. Newcorporate loans were mainly allocated to regions with stronger economy,such as Greater Bay Area and Yangtze River Economic Belt. ICBC targetedto boost retail consumption loans when the pandemic wanes. 4） 1Q20 CIRdeclined 0.7ppt YoY to 19.4%.
Results negatives: 1） Non-interest income fell 3.2% YoY, due to FXtrading losses. Growth in net fee and commission income also softened to2.5% YoY in 1Q20, from 7.1% YoY in FY19. 2） Capital adequacy ratiodeclined, as CET1 and total CAR slid 5bp and 25bp QoQ to 13.15% and16.52%, respectively. 3） 1Q20 ROE was down 0.9ppt to 13.4%.
Maintain BUY with lower TP of HK$7.30. We trim our FY20-21E earningsforecasts by 1.6-2.5%, as we lower fee income growth to reflect possibleconcessionary measures to support the real economy. Our new TP ofHK$7.30 is based on GGM-derived target P/B of 0.86x and FY20E BPS ofRMB7.6.