Profit growth rebounded, but NPL ratio rose slightly in 4Q20
Management suggests that NIM pattern is weakening
Maintain ‘BUY’ rating
　　Profit growth rebounded, but NPL ratio rose slightly in 4Q20 vs. 3Q20
　　1） PPOP increased by 4.4% yoy, and shareholders’ NP rose by 1.2% yoy in 2020, vs. negative NP growth in 9M20, largely due to changes in impairment losses on assets. 2） NIM was 2.15% in 2020, down 15bp vs. in 2019, partly due to the continuous LPR cuts. As vast majority of corporate loans have completed the transition to be LPR-based, NIM pressure from monetary policy is now alleviated. 3） Asset quality is generally stable in 4Q20, but still under some pressures. The balance of NPL rose ~3.0% qoq in 4Q20. The NPL ratio rose slightly from 1.55% in 3Q20-end to 1.58% at 2020-end, which is expected to be mainly caused by the worsened corporate loan NPL ratio. In addition, the company's provision coverage ratio declined in 4Q20.
　　Management discussion
　　1） NIM: Management suggests that yield on the asset side is stabilizing.
　　However, the rigidity of the liabilities cost may continue to impact on NIMs. Therefore, NIMs in 2021 may no longer show unilateral trend.
　　Management skills and balance sheet structure will play increasingly important roles in determining NIMs in 2021. 2） Asset quality: Management earlier suggested that, due to declined special mention ratio and recovery of catering/tourism/transportation sectors （which were worst hit by COVID-19）， coupled with fast 2021E GDP growth, overall asset quality will hopefully be stable. Management will strive to achieve a steady or positive trend of asset quality as earlier as possible.
　　Maintain ‘BUY’ rating
　　ICBC is trading at ~5.01x 21E P/E, or ~0.56x 21E P/B. Trading opportunities might exist for ICBC given its undemanding valuation and price discount of H share to A share （Fig. 5）。 We revised 21E/22E ordinary shareholders’ net profits （Fig. 2）。 ICBC is the industry leader with relatively stable performance in the past. Maintain BUY on valuation. Maintain TP at HKD 6.35, equivalent to ~0.66x 21E P/B, representing a ~10% discount to its past 5-years average P/B multiple. Key catalysts: better-than-expected asset quality, NIM expansion; key downside risks: worse-than-expected asset quality, NIM pressure.