Starting strong; best 1Q since 2014
? 1Q22 net profit growth of 9% yoy was the best start to the year since 1Q14’s
14% yoy. It was also the best net profit growth among the big four banks.
? Asset quality continued improving (1Q22 NPL ratio -3bp qoq) with falling
1Q22 credit costs continuing to be a tailwind to net profit growth.
? This offset falls in 1Q22 non-interest-income (-4.6% yoy), driven by declines
in both fee income (-6.8% yoy) and net trading income (-9.7% yoy).
? Reiterate Add rating, with an unchanged TP of Rmb3.80.
Best start to the year in eight years
1Q22 net profit growth (after deduction of minority interests and payments to holders of
preference shares and perpetual bonds up 9% yoy) was the best start to the year since
1Q14’s 14% yoy. It is also the best among the big four banks, which averaged 7.3%
growth in 1Q22. 1Q22 net profit comprised 25% of our FY22F net profit.
What we liked about the results
i) In addition to the strong 1Q22 net profit growth, we also like 1Q22 non-performing-loan
(NPL) ratio of 1.31%, -3bp qoq; ii) 1Q22 credit cost was 0.75% of average loans (-14bp
yoy), with impairment loss expenses down 8.2% yoy; iii) 1Q22 effective tax rate was
18.3% (-2.2%-pts yoy).
What we did not like about the results
i) 1Q22 cost-to-income ratio was 35.7%, +1.6%-pts yoy; ii) 1Q22 pre-provisioning
operating profit growth fell 0.4% yoy (4Q21: +4.6% yoy). This was driven by 1Q22 fee
income, which fell 6.8% yoy (4Q21: +9.3% yoy), as well as net trading income, which was
down 9.7% yoy (4Q21: +144% yoy). This resulted in 1Q22 non-interest income falling
4.6% yoy (4Q21: +29% yoy); iii) 1Q22 ROE was 12.06%, -11bp yoy;
What else was interesting about the results
i) 1Q22 net interest margin (NIM) was 1.74%, -1bp qoq; ii) 1Q22 core Tier 1 ratio was
11.33% (+21bp yoy; +3bp qoq); iii) 1Q22 provisioning coverage ratio was 187.5% (+71bp
qoq; -234bp yoy); iv) 1Q22 loan-to-deposit ratio was 86.1% (-139bp qoq); v) 1Q22 loan
growth yoy was 10.2% (4Q21: +10.5%) and up 5.3% qoq, while 1Q22 deposit growth yoy
was 7.1% (4Q21: +7.3%) and up 7% qoq; vi) 1Q22 risk-weighted-asset-to-total-assets
ratio was 60.8%, -30bp yoy.
Reiterate Add rating with an unchanged TP of Rmb3.8
We value BOC-A using a stress-test adjusted GGM, after factoring in historical A-H share
valuation gaps, with an unchanged TP of Rmb3.8. Given that 17.4% of its FY21 assets
were offshore (almost all being in Hong Kong), we believe that it is well placed to deliver
better-than-peer increases in FY22F and FY23F, as we expect more than 200bp of US
rate increases in FY22F. Potential re-rating catalysts are improving asset quality and
economic recovery. Key downside risks: a worse-than-expected NIM trend and greater
social responsibilities.