Shareholders’ NP rose 9.9% yoy, overall performance stable
Management is optimistic on maintaining relatively good NIM and asset quality
Valuation undemanding
Stable performance in 1H21
1) PPOP increased by 5.4% yoy, and shareholders’ NP rose by 9.9% yoy in 1H21, partly due to a low base from 1H20. 2) Pressure on NIM still existed for the Company but the downward trend has slowed down.
NIM came in at 2.12% in 1H21, vs. 2.20% in 1H20 or 2.14% in 1Q21, and average yield on loans declined as a result. 3) Asset quality is stable in 2Q21. The balance of NPL virtually unchanged in 2Q21 vs end-1Q21.
The NPL ratio was 1.54% at end-1H21, down from 1.58% at end-2020.
In addition, the Company's allowance to NPL ratio increased to 191.97% in 1H21, vs. 180.68% in 2020. 4) Overall, the Company posted stable performance in 1H21, in line with expectation.
Management discussion
NIM: From the liabilities side, the market competition is still fierce but the upward trend of average cost has slowed down; from the asset side, the return on assets can be maintained at a relatively acceptable level through the adjustment of the asset structure. The management will optimize the asset structure and liabilities structure to ensure a relatively good NIM. Asset quality: Factors such as GDP growth, risk control capability, and asset structure will determine the trend of asset quality. In terms of risk management and control capabilities, the Company strictly controls real estate loans and strengthened management of credit cards.
In addition, the Company has been working on optimizing asset allocation structure. Although the epidemic is still recurring, the impact on asset quality will gradually weaken, and the management is confident on controlling the Company's asset quality.
Valuation undemanding
ICBC is trading at ~3.94x 21E P/E, or ~0.45x 21E P/B. Valuation is not demanding measured by P/B or dividend yield (Fig. 6-7). We slightly revised 21E/22E forecasts for the Company (Fig. 2). ICBC is the industry leader with stable performance records. Maintain BUY on valuation and TP at HKD5.30, equal to 0.55x 21E P/B, or a 25% discount to past 5- year avg. P/B. Key catalysts: better-than-expected asset quality, NIM expansion; key downside risks: worse-than-expected asset quality, NIM pressure.