9M21 results in line with expectation
1) PPOP increased by 6.7% yoy, and shareholders’ NP rose by 10.1% yoy in 9M21 (shareholders’ NP increased by 10.6% yoy in the third quarter), partly driven by the increase in investment gains from equity products due to fluctuations of interest rates, exchange rates and capital market. 2) NIM slightly narrowed to 2.11% in 9M21, compared with 2.12% in 1H21 and 2.14% in 1Q21. 3) 9M21-end balance of NPLs was RMB 311.3 bn, grew 1.1% qoq or 5.9% YTD. NPL ratio continued to decrease in 3Q21, 9M21-end NPL ratio was 1.52%, compared with 1.54% at 1H21-end and 1.58% at 1Q21-end. The allowance to NPL ratio of ICBC at 9M21-end was 196.80%, up 4.83pct qoq or 16.12pct YTD.
Management discussion
Loan quality: NPL formation amount decreased yoy. Mgmt. indicated that ICBC’s loan structure was improved, with more new loans granted in regions with better economic performance and the proportion of mortgage loan in personal loan increased. Property-related risks: For corporate loan, real estate loan accounted for less than 5% of total loan (3.7% at 1H21-end). For personal loan, NPL ratio was very low (0.24% at 1H21-end) and more than 90% of mortgage loan has been granted for real residential demand. NIM: To manage the NIM, ICBC increased the proportion of loan in interest-generating assets around 2pct compared with 2020-end and maintained a stable cost of customers’ deposit in the context of external competition. Mgmt. said that NIM would be on a stable trend. Capital adequacy: Thanks to its foresight, ICBC’s RWA growth is lower than loan growth in past two years, the Co. will strengthen RWA management and develop capital-saving businesses to optimize income structure. Mgmt. showed confidence in meeting the total loss-absorbing capacity (TLAC) requirement of G-SIBs in 2025.
Valuation undemanding; Maintain BUY
ICBC is trading at ~3.80x 21E P/E, or ~0.44x 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.