BOCOM reported 3Q15 NPAT at RMB14.7bn, down 0.2% YoY,largely in line with our forecasts
PPOP grew 4.6% YoY in 3Q15 on stronger growth in gains frominvestment securities, higher than expected
Pressure on asset quality intensified a bit in 3Q15 as the increasein NPL ratio accelerated (+7bps QoQ to 1.42%) while gross NPLformation jumped to 0.97% from 0.53% in 2Q
3Q15 PPOP growth slightly beat estimates yet NPAT
dragged by credit cost hike due to mounting NPLs
We view BOCOM’s 3Q15 results as largely in line with PPOP slightlybeating our expectation, up 4.6% YoY in 3Q15, while NPAT growthdragged by credit cost hike, down to -0.2% YoY in 3Q15.
Positives: 1) Non-interest income jumped 33.5% YoY in 3Q15 (vs +3.8%in 2Q), mainly driven by a surge in gains from investment securities; 2)interest income growth improved to 5.0% YoY in 3Q15 from 3.2% in 2Q,despite a larger NIM contraction of 7bps QoQ in 3Q15; 3) PPOP growthbeat expectation at 4.6% YoY (vs estimated 2.9% YoY) thanks tostronger non-interest income growth; 4) CAR improved on internal capitalgeneration from retained earnings – core Tier 1 CAR/Tier 1 CAR/totalCAR up 11bps/43bps/18bps QoQ to 10.97%/11.29%/13.30% in 3Q15.
Negatives: 1) NIM contracted by 7bps QoQ to 2.18% in 3Q15 as assetyield declined faster than funding cost, larger than expected; 2) assetquality deterioration seems accelerated in 3Q15 – gross NPL formationjumped to 0.97% in 3Q15 from 0.53% in 2Q15 while NPL ratio rose 7bpsQoQ to 1.42% in 3Q15 (also higher than expected); 3) credit cost hiked22bps QoQ to 0.89% in 3Q15 yet coverage ratio dropped 5.10pp QoQ to165.33% due to RMB5.9bn NPL write-offs in 3Q15.
Catalysts & valuation
Further progress in mixed-ownership reform, mixed business operation,smaller-than-expected NIM compression and improving profitability couldserve as positive catalysts for share price. Trading at 0.66x FY15E P/Band 5.18x FY15E P/E, BOCOM valuation is undemanding compared toits historical average of 1.15x P/B.