China Merchants Bank (3968.HK)
Better-than-expected profit growth with increased risks of asset quality
Phillip Securities (Hong Kong) Ltd
Bloomberg │ Reuters │ POEMS
3968.HK│
│3968.HK │ 3968.HK
Phillip Securities Research
Industry: Financial
2013-08-20
Strong growth of intermediate business and
the capital pressure will reduce after the
completion of Rights Issue
Rating
1.00
Buy
- Previous Rating
1.00
Buy
Target Price (HKD)
17.79
Rating: Buy, CP: HK$14.42, TP: HK$17.79
- Previous Target Price (HKD)
21.36
Closing Price (HKD)
14.42
Company Introduction
Expected Capital Gains (%)
23.4%
Established in 1987 in Shenzhen, China Merchants Bank ("CMB")
is China’s first joint-stock commercial bank, which was listed in
A+H Shares in 2002 and 2006 respectively. It’s the first time CMB
listed in Forture500 in 2012, and ranked No. 498 in the list. CMB
was also listed No.56 among the world's Top 1,000 Banks by The
Banker.
Expected Dividend Yield (%)
5.5%
Expected Total Return (%)
28.9%
Raw Beta (Past 2yrs w eekly data)
N/A
Market Cap. (HKD bn)
305,183
Enterprise Value (HKD mn)
N/A
52 w eek range (HKD)
0%
25.00
50%
100%
20.00
15.00
10.00
5.00
0.00
100
90
80
70
60
50
40
30
20
10
0
20-Jul-13
20-Jun-13
20-May-13
20-Apr-13
Volume, mn
20-Mar-13
20-Feb-13
20-Jan-13
20-Dec-12
20-Nov-12
20-Oct-12
20-Sep-12
1 of 1
Closing Price in 52 w eek range
20-Aug-12
Summary
•
According to CMB’s 1H2013 result announced last
week, it maintained stable profit growth that accumulate
net profits achieved to RMB26.271 billion, up 12.39% yy, equivalent to the EPS of RMB1.22 with the year-onyear growth rate of 12.96%,slightly higher than our
expectation;
•
The main reasons of profit growth are not only the
stable increase of interest income but also the strong
growth of intermediate business income. As at the end
of June, the Group’s net commission fee increased
largely by 45.5% y-y to RMB14.164 billion, around
10.7% higher than our estimation for Bloomberg;
•
After the large growth as high as 22% in 2012, the asset
growth of CMB started to slow down in 1H2013.
However, the growth rate of total asset in 2Q was much
higher than 1Q’s 3.09% due to the strong increase of
investment assets such as amounts held under resale
agreements. As at the end of June, the Group’s total
assets increased by 11.81% to RMB3.81 trillion
compared with the end of 2012, with net assets of
RMB212.343 billion, slightly lower than that of 1Q,
equivalent to the BVPS of RMB9.84, 6% higher than
that of 2012;
•
We concern about the quality of loans, and it showed
that there was the deterioration of CMB’s asset quality
with the consistent increase of both amount and ratio of
NPLs since 3Q2012. As at the end of 2Q2013, the
Group’s NPL ratio up 0.1ppts to 0.71% compared with
the end of 2012, with the amount of RMB14.925 billion,
increased by RMB3.231 billion. Meanwhile, the
converge ratio dropped 47.07ppts to 304.72%;
•
CMB has large capital pressure with the lower CAR
compared with the peers. By the end of 2Q, the Tier 1
Ratio and CAR of CMB recorded to 8.0% and 10.72%,
down 0.34 and 0.69ppts respectively compared with the
end of 2012. To ease the capital pressure, CMB
announced a new financing plan last week that the
11.96 - 19.02
3968 hk equity
HSI
Key Financial Sum m ary
FYE
12/11
12/12
12/13F
Operating Profit (RMB mn)
47,059
59,500
68,628
80,438
Net Profit, adj. (RMB mn)
36,129
45,273
52,416
61,813
EPS, adj. (RMB)
1.67
2.10
2.33
2.44
P/E (X)
6.8
5.4
4.9
4.7
BVPS (RMB)
7.65
9.28
9.71
10.56
P/B (X)
1.5
1.2
1.2
1.1
DPS (RMB)
0.42
0.63
0.70
0.73
3.69%
5.54%
6.14%
6.43%
Div. Yield
Source: Bloomberg, PSR est.
*All multiples & yields based on current market price
Valuation Method
DDM
Research Analyst
Xingyu Chen
[email protected]
+86 21 6169 9400 - 105
12/14F
CMB (3968.HK)
Phillip Securities (Hong Kong) Research
2013-8-20
•
application of the Group’s Rights Issue in H Shares had
been approved by the CSRC that CMB could issue no
more than 680 million overseas foreign rights shares, all
being ordinary shares, to the holders of such shares.
With the other Rights Issue in A Shares, CMB will fund
RMB35 billion in A+H Shares this time to increase the
capital. We believe the Tier-1 Ratio will be increased by
1.8ppts by the end of this year if the financing plan will
be completed within 2H;
In all, the profit performance of CMB maintains stable,
and we concern about its asset quality and the CAR in
future. We believe CMB’s operation now starts enter the
mature stage, and the profit growth will be slowed down
continually in future. However, we still hold confidence in
CMB’s competitive business model and brand influence,
based on 3-stage DDM, we cut its 12-m TP to HK$17.79,
23.4% higher than the latest closing price, equivalent to
9.2xP/E and P/B2.1x in 2014 respectively, and we
maintain Buy rating
RMB Million
2012H1
2,621
Bank card fees
2013H1 Growth rate y-y
3,730
42.3%
1,250
14.9%
Settlement and clearing fees
1,088
Agency services fees
1,975
2,640
33.7%
Commissions from credit commitment and loan business
1,186
1,436
21.1%
Commissions from custody and other trustee businesses
2,333
3,456
48.1%
Others
1,208
2,571
112.8%
10,411
15,083
(679)
9,732
(919)
14,164
44.9%
35.3%
Total fee and commission income
Fee and commission expense
Net fee and commission income
45.5%
Source: PSR, Company report
Figure 2. NPL and coverage ratios of CMB
Coverage ratio
NPL ratio
Coverage ratio
450.00%
1.20%
NPL ratio （Right)
400.00%
1.00%
350.00%
300.00%
Income Statement (RMB Million)
Net interest income
2013H1E 2013H1 RV/EV 2012H1 Growth rate y-y
48,872 47,441 -2.9% 43,641
8.7%
Net fee and commission income
12,795 14,164 10.7%
9,732
45.5%
Operating income
64,780 64,186 -0.9% 57,234
12.1%
Operating profit
33,584 34,822
3.7% 30,794
13.1%
Profit before tax
33,658 34,848
3.5% 30,821
13.1%
Profit for the year
25,585 26,266
2.7% 23,373
12.4%
Net profit attributable to equity holders of the Bank 25,583 26,271
2.7% 23,374
12.4%
0.80%
250.00%
0.60%
200.00%
150.00%
0.40%
100.00%
0.20%
50.00%
0.00%
0.00%
2008
2009Q1
2009H1
2009Q3
2009
2010Q1
2010H1
2010Q3
2010
2011Q1
2011H1
2011Q3
2011
2012Q1
2012H1
2012Q3
2012
2013Q1
2013H1
2013Q3E
2013E
Table 1. Comparison between real value and estimated value of CMB
Source: PSR, Company report
Figure 3. Tier-1 Ratio of domestic listed banks in 1Q2103
Tier 1 ratio
(%)
11.5
11
10.5
10
Source: PSR, Company report
9.5
9
Figure 1. Trend of CMB’s NIM
8.5
8
NIM
4.00%
7.5
Net interest margin
7
6.5
3.50%
6
3.00%
CRCB
ICBC
CCB
BoCom
BOC
CITIC
ABC
CMB Minsheng
Source: PSR, Company report
2.50%
2.00%
Figure 4. Core Tier-1 Ratio and CAR of CMB
1.50%
Core Tier-1 Ratio
1.00%
13.00%
0.00%
12.00%
2006A
2007H1
2007
2008H1
2008
2009H1
2009Q3
2009
2010Q1
2010H1
2010Q3
2010
2011Q1
2011H1
2011Q3
2011
2012Q1
2012H1
2012Q3
2012
2013Q1
2013H1
2013Q3E
2013E
0.50%
CAR
11.00%
10.00%
Source: PSR, Company report
9.00%
8.00%
Table 2. The growth of commission fees of CMB
7.00%
6.00%
5.00%
2007
2008Q1
2008H1
2008Q3
2008
2009Q1
2009H1
2009Q3
2009
2010Q1
2010H1
2010Q3
2010
2011Q1
2011H1
2011Q3
2011
2012Q1
2012H1
2012Q3
2012
2013Q1
2013H1
4.00%
Source: PSR, Company report
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CMB (3968.HK)
Phillip Securities (Hong Kong) Research
2013-8-20
Financial Status
FYE
FY10
Valuation Ratios
P/E (X)
9.2
P/B (X)
1.8
Dividend Payout ratio
23.50%
Dividend Yield
2.47%
Per s hare data (RM B)
EPS, reported
1.23
EPS, adj.
1.23
DPS
0.28
BVPS
6.21
Grow th
Net interest income
41.4%
Net f ee and commission income(exp.)
41.7%
Operating prof it
49.1%
Net Income, adj.
41.3%
Key Ratios
Net interest spread
2.56%
Net interest margin
2.65%
Loan to deposit
73.91%
Cost to income ratio
39.69%
ROAA
1.15%
ROAE
22.73%
NPL ratio
0.68%
Coverage ratio
302.41%
Core CAR
8.04%
CAR
11.47%
Incom e State m e nt (RMB m n)
FY10
Net interest income
57,076
Net f ee and commission income
11,330
Ope rating incom e
71,692
Operating expenses
(32,634)
Operating prof it before impairment losses
38,780
Impairment losses
(5,501)
Ope rating profit
33,279
Prof it bef ore tax
33,343
(7,574)
Income tax
Ef fective income tax rate
22.72%
Profit be fore tax
25,769
Minority interest
0
Net profit attributable to e quity holders of the Bank 25,769
Declared and paid Dividends
6,056
Balance Shee t (RM B m n)
FY10
Cash and balances w ith banks and other f inancial institutions
28,961
Balances w ith central bank
294,955
Placements w ith banks and other financial institutions
58,917
Loans and advances to customers
1,402,160
Investments
580,700
Fixed assets
15,038
Intangible assets
2,620
Def erred tax assets
3,706
Goodw ill
9,598
Other assets
5,852
Total As s e ts
2,402,507
Deposits f rom banks and other f inancial Institutions
203,011
Placements f rom banks and other f inancial institutions
45,573
Deposits f rom customers
1,897,178
Financial liabilities at f air value through prof it or loss
1,165
Current taxation
4,972
Def erred tax liabilities
924
Other liabilities
30,356
Total Liabilitie s
2,268,501
Share capital
21,577
Capital reserve
36,197
Surplus reserve
10,880
Investment revaluation reserve
(1,311)
Regulatory general reserve
16,812
Retained profits
49,063
Share holde r's e quity
134,006
Minority interest
0
Total shareholders’ equity
134,006
Total shareholders’ equity and liabilities
2,402,507
Source: PSR
FY11
FY12
FY13F
FY14F
6.8
1.5
25.08%
3.69%
5.4
1.2
30.02%
5.54%
4.9
1.2
30.00%
6.14%
4.7
1.1
30.00%
6.43%
1.67
1.67
0.42
7.65
2.10
2.10
0.63
9.28
2.33
2.33
0.70
9.71
2.44
2.44
0.73
10.56
33.7%
37.9%
41.4%
40.2%
15.8%
26.3%
26.4%
25.3%
7.2%
32.9%
15.3%
15.8%
8.3%
28.7%
17.2%
17.9%
2.94%
3.06%
72.27%
36.00%
1.39%
24.17%
0.56%
400.13%
8.22%
11.53%
FY11
76,307
15,628
96,603
(40,889)
55,409
(8,350)
47,059
47,122
(10,995)
23.33%
36,127
(2)
36,129
9,062
FY11
63,046
408,304
131,381
1,604,371
547,485
17,500
2,605
4,337
9,598
5,888
2,794,971
205,699
67,484
2,220,060
4,724
7,112
864
14,918
2,629,961
21,577
37,508
14,325
157
18,794
64,446
164,997
13
165,010
2,794,971
2.87%
3.05%
73.58%
35.84%
1.46%
24.77%
0.61%
351.79%
8.49%
12.14%
FY12
88,374
19,739
113,754
(48,350)
65,083
(5,583)
59,500
59,564
(14,287)
23.99%
45,277
4
45,273
13,593
FY12
280,870
471,415
103,420
1,863,325
642,513
20,392
2,851
4,993
9,598
8,722
3,408,099
258,692
109,815
2,532,444
6,854
6,679
813
26,471
3,207,698
21,577
37,508
18,618
37
39,195
71,326
200,328
73
200,401
3,408,099
2.65%
2.83%
73.91%
35.00%
1.41%
23.48%
0.72%
337.72%
9.27%
12.35%
FY13F
94,742
26,224
126,408
(50,768)
75,272
(6,644)
68,628
68,708
(16,287)
23.70%
52,421
5
52,416
15,725
FY13F
84,261
527,513
108,591
2,096,241
1,156,523
20,800
2,950
5,243
9,598
26,166
4,037,886
398,386
142,760
2,836,337
32,899
8,015
837
34,942
3,791,809
25,331
38,780
19,549
50
42,331
106,989
245,861
216
246,076
4,037,886
2.60%
2.72%
73.31%
36.00%
1.45%
24.06%
0.81%
334.34%
9.17%
12.10%
FY14F
102,565
33,752
142,824
(54,321)
88,078
(7,640)
80,438
80,549
(18,730)
23.25%
61,819
6
61,813
18,544
FY14F
87,631
590,815
112,935
2,326,827
1,306,871
21,840
3,009
6,553
9,598
30,614
4,496,694
414,321
164,173
3,173,861
38,821
9,217
896
41,930
4,229,010
25,331
38,780
19,549
60
46,564
124,000
267,453
231
267,684
4,496,694
Source: Company, PSR
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CMB (3968.HK)
Phillip Securities (Hong Kong) Research
2013-8-20
Ratings History
Market Price
Target Price
40
Source: Bloomberg, PSR
35
30
25
20
15
10
5
0
Dec-13
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
1
2
3
4
5
PSR Rating System
Total Returns
Recom m endation Rating
> +20%
Buy
1
+5% to +20%
Accumulate
2
-5% to +5%
Neutral
3
-5% to -20%
Reduce
4
<-20%
Sell
5
Rem arks
We do not base our recommendations entirely on the above quantitative return bands.
We consider qualitative factors like (but not limited to) a stock's risk rew ard profile, market
sentiment, recent rate of share price appreciation, presence or absence of stock price
catalysts, and speculative undertones surrounding the stock, before making our final
recommendation
4 of 4
CMB (3968.HK)
Phillip Securities (Hong Kong) Research
2013-8-20
PHILLIP RESEARCH STOCK SELECTION SYSTEMS
Total Return
>+20%
+5% to +20%
-5% to +5%
-5% to -20%
<-20%
Recommendation
Buy
Accumulate
Neutral
Reduce
Sell
Rating
1
2
3
4
5
Remarks
>20% upside from the current price
+5% to +20%upside from the current price
Trade within ± 5% from the current price
-5% to -20% downside from the current price
>20%downside from the current price
PHILLIP RESEARCH STOCK SELECTION SYSTEMS
We do not base our recommendations entirely on the above quantitative return bands. We consider qualitative factors like (but not limited to) a stock's risk
reward profile, market sentiment, recent rate of share price appreciation, presence or absence of stock price catalysts, and speculative undertones
surrounding the stock, before making our final recommendation
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2013 Phillip Securities (Hong Kong) Limited
5 of 5
CMB (3968.HK)
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2013-8-20
Contact Information (Regional Member Companies)
SINGAPORE
Phillip Securities Pte Ltd
Raffles City Tower
250, North Bridge Road #06-00
Singapore 179101
Tel : (65) 6533 6001
Fax : (65) 6535 6631
Website: www.poems.com.sg
MALAYSIA
Phillip Capital Management Sdn Bhd
B-3-6 Block B Level 3 Megan Avenue II,
No. 12, Jalan Yap Kwan Seng, 50450
Kuala Lumpur
Tel (603) 21628841
Fax (603) 21665099
Website: www.poems.com.my
HONG KONG
Phillip Securities (HK) Ltd
Exchange Participant of the Stock Exchange of Hong Kong
11/F United Centre 95 Queensway
Hong Kong
Tel (852) 22776600
Fax (852) 28685307
Websites: www.phillip.com.hk
JAPAN
PhillipCapital Japan K.K.
Nagata-cho Bldg.,
8F, 2-4-3 Nagata-cho,
Chiyoda-ku, Tokyo 100-0014
Tel (81-3) 35953631
Fax (81-3) 35953630
Website:www.phillip.co.jp
INDONESIA
PT Phillip Securities Indonesia
ANZ Tower Level 23B,
Jl Jend Sudirman Kav 33A
Jakarta 10220 – Indonesia
Tel (62-21) 57900800
Fax (62-21) 57900809
Website: www.phillip.co.id
CHINA
Phillip Financial Advisory (Shanghai) Co. Ltd
No 436 Hengfeng Road,
Greentech Unit 604,
Postal code 200070
Tel (86-21) 51699400
Fax (86-21) 63532643
Website: www.phillip.com.cn
THAILAND
Phillip Securities (Thailand) Public Co. Ltd
15th Floor, Vorawat Building,
849 Silom Road, Silom, Bangrak,
Bangkok 10500 Thailand
Tel (66-2) 6351700 / 22680999
Fax (66-2) 22680921
Website www.phillip.co.th
FRANCE
King & Shaxson Capital Limited
3rd Floor, 35 Rue de la Bienfaisance 75008
Paris France
Tel (33-1) 45633100
Fax (33-1) 45636017
Website: www.kingandshaxson.com
UNITED KINGDOM
King & Shaxson Capital Limited
6th Floor, Candlewick House,
120 Cannon Street,
London, EC4N 6AS
Tel (44-20) 7426 5950
Fax (44-20) 7626 1757
Website: www.kingandshaxson.com
UNITED STATES
Phillip Futures Inc
141 W Jackson Blvd Ste 3050
The Chicago Board of Trade Building
Chicago, IL 60604 USA
Tel +1.312.356.9000
Fax +1.312.356.9005
AUSTRALIA
PhillipCapital Australia
Level 37, 530 Collins Street,
Melbourne, Victoria 3000, Australia
Tel (613) 96298380
Fax (613) 96148309
Website: www.phillipcapital.com.au
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