4Q15 NPAT grew 2.2% YoY to RMB39.3 bn, resulting in full-year 0.7% YoY growth to RMB170.8 bn in FY15, in line with our forecasts
Asset quality deteriorated at a much milder pace than peers in 4Q15 thanks to its larger exposure to overseas market - NPL ratio flattened QoQ at 1.43% in 4Q15, while NPL balance edged up 1.1% QoQ, the smallest increase among peers
Maintain TOP BUY with TP of HK$4.72 as we see BOC’s valuation as attractive and expect the Bank to continue benefiting from its largest portion of overseas assets among peers
Stable NIM and NPL ratio with accelerating growth innon-interest income in 4Q15
PPOP grew 8.2% YoY in 4Q15 underpinned by brisk growth in noninterestincome of 27.8% YoY, contributed by strong insurance premiumsand fee income, but elevated credit cost of 0.63% dragged NPAT growth.Positives: 1) NPL balance slightly increased 1.1% QoQ while NPL ratioremained unchanged at 1.43% in 4Q15, buffered by healthy asset qualityin overseas with NPL ratio of 0.13%. Besides, we estimate gross NPLformation eased to 0.61% in 4Q15 from 0.83% in 3Q15; 2) NIM stayedflattish at 2.06% in 4Q15 compared to that in 3Q15, despite the ongoinginterest rate liberalization and the consecutive rate cuts; 3) fee incomegrowth picked up to 9.2% YoY in 4Q15 as compared to 7.5% in 3Q15; 4)non-interest income grew 27.8% YoY, representing 30.2% of total income,which partly offset the sluggish growth in net interest income; 5) capitalbase strengthened on internal capital generation. Core T1 CAR/ T1 CAR/CAR rose 39bps/39bps/41bps QoQ to 11.10%/12.07%/14.06% in 4Q15;and 6) payout ratio remained above 30% (30.2% for FY15), despite adecline of 2.1pp YoY, in line with our expectation.
Negatives: 1) Coverage ratio dipped 0.42pp QoQ to 153.30% in 4Q15,only a notch above the regulatory requirement of 150%; and 2) credit coststayed at a high level of 0.63% in 4Q15, dragging bottom line growth
Catalysts & valuation
A more resilient NIM thanks to better-than-expected global economy andsupportive fiscal and monetary policy could be positive catalysts. Tradingat 0.59x FY16E P/B and 5.00x FY16E P/E with FY16E dividend yield of6.00%, BOC’s valuation is very attractive compared to the historicalaverage of 0.95x P/B and sector average of 0.69x P/B. BOC remains ourtop BUY stock within sector coverage with TP of HK$4.72.