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 of 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).
? Remains top pick of big banks; reiterate Add rating and TP of HK$4.2.
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.
Top pick of the big banks; Reiterate Add rating and TP of HK$4.2
We value BOC using a stress-test adjusted GGM, with an unchanged TP of HK$4.2.
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 rises in FY22F. Potential re-rating catalysts are
improving asset quality and economic recovery. Key downside risks: a worse-thanexpected NIM trend and greater social responsibilities.