Decade of dominance
? With CMB-A outperforming MSCI China by 5% pts YTD, CMB looks well positioned to record a strong decade of outperformance since end-2012.
? Following FY20’s temporary ROE fall, we forecast a return to rising ROE from FY21F till at least FY24F, with this driving continued P/BV multiple expansion.
? We see CMB delivering better-than-peer NIM performance supported by its larger-than-peer exposure to rising mortgage margins.
? Reiterate Add. Our TP rises to Rmb69.30 on higher FY21F-23F EPS and valuation roll-forward.
Looking to record 10th consecutive year of outperformance
CMB-A has outperformed the MSCI China index, up 5% pts YTD. It has outperformed the MSCI China and MSCI Asia ex Japan index in most years since end-2012 and we expect this to continue in 2022F. With such an impressive track record, CMB has over the past seven years rose from being China’s sixth-largest bank to the second-largest by market capitalisation (see The Amazing Race: Next stop – Number 1, dated 13 May 2021). We also point out that 2022 YTD is the best start to the year for the MSCI China banks index (relative to the MSCI China index) in 16 years (Fig 2), as China banks outperform on inflation concerns (see Inflation hedging, dated 8 Jun 2021), and on their defensive qualities (see How valuable is sleeping well at night?, dated 28 Jul 2021).
Returning to a rising ROE trend
Prior to the onset of the pandemic in 2020, CMB’s ROE had consistently rose since 2016, after falling continuously since 2012. We see the fall in its ROE in 2020 as temporary, and project growth from FY21F till at least FY24F (Fig 6). Rising ROE has traditionally been a strong driver of CMB’s rising P/BV (Figs 9 and 10) and we expect this to continue. Best exposure to rising mortgage margins among mid-size banks CMB has the largest mix of mortgages among mid-size banks (Fig 12). We expect stronger mortgage margins yoy, coupled with its sizable credit card portfolio, to help CMB deliver better-than-peer net interest margin (NIM) performance in FY22F.
Reiterate Add; TP raised to Rmb69.3
We value CMB-A using a stress-test adjusted GGM (after factoring in its historical A-H share valuation premiums). Our FY21F-23F EPS estimates are raised by 0.5-5.4%, primarily due to lower provisioning expenses. This, coupled with the roll-forward of our valuation to FY22F, lifts our TP to Rmb69.3 from Rmb61.3. We like CMB’s wealth management business (see Different from the rest, 23 Aug 2019), large provisioning buffers, and track record of significantly better-than-peers profit growth, with it benefitting
from a stricter fintech regulatory environment. Potential re-rating catalysts are improving asset quality and economic recovery. Key downside risks: a worse-than-expected NIM trend and greater social responsibilities.