CCB’s earnings contraction improved notably to -4.1% YoY in 3Q20 from -26.5% YoY in 2Q20, thanks to decent PPoP growth (+7.1% YoY) and lower credit cost (-33bp QoQ). 9M20 net profit declined 8.7% YoY to RMB 205.8bn, accounting for 86.8% of our full-year estimate. Bottom line growth is likely to pick up further in 4Q20, as policy guidance effects wane along with macro recovery. We await more details from results briefing at 4pm today.
- Results positives: 1) NIM expanded 2bp QoQ, (vs 10bp contraction in 2Q20). As LPR has remained stable since Apr and retail credit growth accelerates, NIM may keep rebounding in 4Q20. 2) Net fee income growth accelerated to 3.8% YoY in 3Q20 (vs 2.9% YoY in 2Q20), mainly on strong credit cards, e-banking, and agency service fees. 3) Deposit growth was solid at 2.6% QoQ. CCB has little reliance on structured deposits, which is shrinking amid regulatory tightening. 4) 3Q20 cost-to-income ratio fell 3.2ppt YoY to 28.0%, as the Bank managed to cut operating expenses by 8.2% YoY. 5) Lower effective tax rate, thanks to rising investments to tax-free govt bonds.
- Results negatives: 1) Loan growth moderated to 1.4% in 3Q20 (vs 3.1% in 2Q20). Corporate loan growth was muted, and retail loans rose 3.3% QoQ. Meanwhile, financial investments was up 4.7% QoQ, likely due to higher asset allocation to local govt bonds, reflecting CCB’s conservative risk appetite. 2) NPL continued to expose, yet pressure marginally eased. NPL ratio climbed 4bp QoQ to 1.53%, and provision coverage slid 6ppt QoQ to 217.5%. However, the magnitude of asset quality deterioration turned softer in 3Q20 vs 2Q20 (NPL ratio +8bp QoQ). 3) Trading and investment gain declined 1.8% YoY in 3Q20 on bond yield hike. 4) CET1/ tier1 CAR slid 1bp/ 2bp QoQ to 13.15%/ 13.86%, but total CAR rose 26bp QoQ, thanks to RMB 65bn tier2 capital bond issuance in Sep.
- Maintain BUY and HK$7.60 TP. We keep earnings forecast unchanged. Our TP of HK$7.60 is derived from 0.74x target P/B and FY20E BVPS of RMB9.0.
