We revised FY15/16/17E NPAT by 0.5%/-2.2%/-4.0% based on ourrevised assumptions in NIM, NPL ratio and credit cost. We nowexpect NPAT to grow 0.5%/-2.2%/2.8% YoY to RMB66 bn/65 bn/67 bnin FY15/16/17E, which are 1.0%/1.9%/2.0% higher than consensus
4Q15E NPAT is expected to slightly slip 1.3% YoY to RMB14 bn.Swift growth in non-interest income of 15.1% YoY in 4Q15E shouldpartially offset the decline in net interest income due to narrowingNIM. Asset quality should deteriorate at a milder pace than peers
Rolling over to FY16E with downwardly revised TP of HK$6.75based on target P/B of 0.80x applied to our estimated FY16E BVPSof RMB7.58. Maintain BUY rating given attractive valuation andexpectations on continued improvement in profitability along withthe progress towards mixed ownership reform
FY15/16/17E earnings revision - brisk fee income growthbut larger NIM compression and higher NPLs/credit cost
We revised our earnings forecasts by 0.5%/-2.2%/-4.0% in FY15/16/17E,resulting in YoY growth of 0.5%/-2.2%/2.8%. We revised up FY15/16/17ENIM by 8/3/1bps to 2.21%/2.03%/1.94% thanks to the Bank’s resiliency instabilizing NIM compression due to the rate cuts last year and interestrate liberalization. Decent growth in fee incomes is expected. Weupwardly revised fee incomes by 1.9%/3.5%/4.9% in FY15/16/17E toproject YoY growth of 15.9%/15.7%/15.7%. We lifted NPL ratio by0/8/6bps to 1.48%/1.70%/1.78% in FY15/16/17E on the concern over thefaltering economy in China. Given the rising NPLs and low coverageratio, we revised up credit cost by 13/32/25bps to 0.77%/0.87%/0.79% forFY15/16/17E.
4Q15E NPAT likely slips 1.3% YoY to RMB14 bn. We expect briskgrowth in non-interest income of 15.1% YoY should partially offset thedecline in net interest income due to narrowing NIM and relatively highcredit cost given low coverage ratio and rising NPLs. Asset quality likelydeteriorates at a milder pace as compared to H-share peers.
Catalysts & valuation
We revised down our sustainable ROE assumption to 9.71% (previously11.75%) to reflect the increasing pressure on asset quality coupled withnarrowing margin due to rate cuts and interest rate liberalization. Wederived our revised TP of HK$6.75 (previously HK$8.80) based on arevised target P/B of 0.80x (previously 1.01x) applied to our estimatedFY16E BVPS of RMB7.58 and RMB/HKD exchange rate of 0.90 for endof FY16E. BOCOM is now trading at 0.58x FY16E P/B and 5.04x FY16EP/E, and we think its valuation is attractive compared to its historicalaverage P/B of 1.26x. Maintain BUY.