INDUSTRIAL AND COMMERCIAL BANK OF CHINA (1398 HK/601398 CH)
Recommendation : BUY (1398 HK/601398 CH)
Fair Value : HKD 6.00 (1398 HK)/ CNY 5.80 (601398 CH)
A LAGGARD AMONG ITS PEERS. S
• Top-line growth accelerated
• Asset quality remained stable
• Undemanding valuation but lack of catalysts
While ICBC’s 3Q21 net profit growth accelerated to 11% y/y in 3Q21, its profit growth continued to lag behind its peers. Revenue growth also accelerated to 10% y/y in 3Q21. However, core earnings remained relatively weak, with net interest margin (NIM) edged down modestly by 1bp q/q to 2.09% & fee income growth stayed flat y/y in 3Q21. ICBC’s asset quality remained stable.
Looking ahead, management expects NIM trend to gradually stabilize. The stock is trading at 0.38x (1398 HK) / 0.52x (601398 CH) forward Price-to-Book (vs. 11.5% forward Return-on-Equity & is at -2 s.d. to historical averages) & is offering more than 8% (1398 HK) / 6% (601398 CH) forward dividend yield. Despite that valuation is undemanding, we believe there is a lack of positive catalysts. In the medium- to long-term, we maintain our preference to retail-focused banks within the Chinese banks sector. We maintain our Fair Value estimate at HKD6.0 (1398 HK) / CNY5.8 (601398 CH) based on an unchanged valuation multiple.