Shareholders’ net profit grew by 5.7% yoy in 1Q22, in line
Loan quality maintained stable
Maintain BUY rating and TP at HKD5.95
　　Steady performance in 1Q22
　　1) Shareholders’ net profit rose by 5.72% yoy in 1Q22, in line with expectation. 2) NIM virtually unchanged at 2.10% in 1Q22, compared with 2.11% in 2021 and 2.14% in 1Q21. 3) Due to the complex economic environment and the recurred COVID-19, there was some increased pressure on loan quality, such that the 1Q22-end balance of NPLs increased by 4.6% qoq. The overall loan quality still maintained stable.The NPL ratio was 1.42% at end-1Q22, same as end-2021. The allowance to NPLs stood at 209.91%, vs 205.84% at end-2021. 4) ICBC’s overall 1Q22 result is in line. The Company demonstrated its business resiliency, with a balanced approach between value creation and risk management.
　　Management discussion
　　NIM trend: In 1Q22, ICBC had steady growth in the scale of assets with improved structure and stable yield. The policy is quite clear, that is, to guide the real and continuous reduction of financing cost of market entities. This will lead to pressure on the NIM from the asset side. On the liabilities side, the ceiling on deposit rates for medium and long-term deposits were lowered by 10bp, beneficial to cost control. However, the competition in the deposit market is fierce and banks are still under pressure to control the cost of liabilities. ICBC will strive to stabilize its NIM by strengthening risk pricing and optimizing structures of assets and liabilities. In addition, the return on overseas assets is rising, positive to ICBC’s NIM. Loan quality: The impact of the recent COVID-19 outbreak on asset quality is manageable. The Company suggested that its loan structure has been improving, and expressed confidence on maintaining steady loan quality. The Company had limited risk exposure to real estate related corporate loans (Fig. 5). As the policies on the real estate sector are marginally relaxed recently, the asset quality on the sector is also likely to improve.
　　Maintain BUY rating and TP at HKD 5.95
　　ICBC is trading at ~3.87x 22E P/E, or ~0.44x 22E P/B. Valuation is not demanding measured by P/B or dividend yield (Fig. 6-7). We slightly revised 22E/23E forecasts for the Company (Fig. 2). ICBC is the industry leader with stable performance records. Maintain BUY on undemanding valuation and its consolidated asset quality, with TP at HKD5.95, equal to 0.55x 22E P/B, or a 20% 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.