Banking – China
September’s Headline New Loans Disappoint But We See
Positives
Although September’s new loans were lower than market expectations, we see signs of possible
economic recovery as there were continual improvements in the loan mix and pick-up in M1 and M2
growth. With 9M12 new loans reaching 84% of our full-year forecast, we see upside to our 2012 loan
target of Rmb8t. Maintain MARKET WEIGHT. ICBC remains our preferred pick and we recommend
accumulating on pullback.
What’s New
Regional Morning Notes
Monday, October 15, 2012
MARKET WEIGHT
(Maintained)
Sector Update
Top Sector Picks
Company Rec Target Share Price Price (HK$) (HK$)
ABC BUY 3.60 3.22
ICBC BUY 5.00 4.96
Source: UOB Kay Hian
Price Chart
AGRICULTURAL BANK OF CHINA-H
September’s new loans below expectation. The PBOC announced new loans of Rmb623.2b in
September, lower than market expectations of Rmb700b. We attribute the disappointment mainly to an
overly aggressive new loan expectation as the September new loans were still on track to meet our
full-year target of Rmb8t. Despite disappointment in the headline numbers, we see positives with
continual improvement in loan mix with the clampdown on bills financing and recovering M1 and M2
growths. New deposits were Rmb1.66t, significantly higher than August’s on the back of quarter-end
effects, which lowered the system’s loan-to-deposit ratio (LDR) to 68.4%, 0.6ppt lower than that of
August.
(lcy)
4.00
3.50
3.00
2.50
2.00
800
600
400
200
0
Volum e (m )
Agricultural Bank Of China-H/HSI Index
(%)
130
120
110
100
90
80
70
Improving M1 and M2 growth. M1 and M2 grew 7.3% and 14.8% yoy in September, up by 2.8ppt and
1.3ppt mom respectively. The significant growth in M1 and M2 was attributable to a) quarter-end
effects b) the preparation of the Golden Week; and c) a low-base effect as growth
Oct 11 Dec 11 Feb 12 Ap r 12 Jun 12 Aug 12
Source: Bloomberg
Price Chart
IND & COMM BK OF CHINA-H
(lcy)
(%)
slowed down immensely in Sep 11. Although the recovery in M1 and M2 growth may be due to
seasonality, we are cautiously optimistic on the economic recovery on the back of the
better-than-expected September export data.
Action
ICBC as our preferred pick; recommend accumulating on pullback.
We hold the view that banks’ share prices will trade in a range-bound
pattern as concerns on NIM and asset quality remain. We prefer banks that are more defensive and
offer higher yields. ICBC is our preferred
6.00
5.50
5.00
4.50
4.00
3.50
6000
4000
2000
0
Volum e (m )
Ind & Comm Bk Of China-H/HSI Index
140
130
120
110
100
90
80
pick in the sector on the back of its stronger capital and better NPL trend. We recommend
accumulating on pullback after the recent rally.
Essentials
Healthier loan mix as mid- to long-term loans continued to increase.
Of the Rmb623.2b new loans in September, Rmb287b were mid-to-long- term loans, representing 46%
of total new loans, the highest since
January’s 47.6%. Corporate mid-to-long-term new loans increased
slightly mom but was offset by the mom decline in long-term household loans, likely due to a
decline in personal mortgage lending. Given the weaker home sales recently, we are likely to see
long-term household loan growth decelerating in the coming months.
Peer Comparison
Oct 11 Dec 11 Feb 12 Ap r 12 Jun 12 Aug 12
Source: Bloomberg
Analysts
Edmond Law
Christopher Chan
Price Target Net Profit PE
P/B ROE Market Yield
Company Rec 12 Oct 12 Price 2011 2012F 2013F 2011 2012F 2013F
2011 2012F 2013F 2012F Cap 2012F (HK$) (HK$) (Rmbm) (Rmbm) (Rmbm)
(x) (x) (x) (x) (x) (x) (%) (US$m) (%)
ICBC BUY 4.96 5.00 208,265 224,823 225,433 6.7
6.2 6.2 1.5 1.3 1.1 21.7 214,315 5.6
CCB HOLD 5.76 5.60 169,258 186,289 183,088 6.6
6.2 6.4 1.4 1.2 1.1 21.3 184,310 5.6
ABC BUY 3.22 3.60 121,927 140,219 145,328 6.9
6.0 5.8 1.3 1.1 1.0 20.1 129,593 5.8
BOC HOLD 3.07 2.90 124,182 129,488 128,707 5.6
5.4 5.4 1.0 0.9 0.8 16.9 118,168 6.5
BoCom SELL 5.7 4.75 51,226 52,639 52,322 5.6
5.4 5.5 1.0 0.9 0.8 18.0 52,608 3.7
CMB SELL 14.42 12.00 36,129 39,717 39,225 7.0
6.3 6.4 1.5 1.3 1.1 22.0 36,344 3.9
Minsheng HOLD 6.65 6.75 27,920 31,547 31,318 5.1
4.7 4.9 1.1 0.9 0.8 21.6 25,694 5.3
Source: Bloomberg, UOB Kay Hian