ROE continues its rebound
? We like the fact that 1Q22 ROE continued to rebound to 13.6% (+0.3% pts
yoy), after FY21 ROE rose for the first time in eight years (since FY13).
? 1Q22 net profit growth of 10.9% yoy was the strongest 1Q start to the year
since 1Q14’s 16.1% yoy.
? Capital remains our biggest concern, with 1Q22 core Tier 1 ratio at 8.66%,
down 19bp qoq due to higher risk-weighted-asset intensity.
? Reiterate Add and TP of Rmb4.90.
Best 1Q start to the year in eight years
1Q22 growth of net profits (after deduction of minority interests and payments to holders
of preference shares and perpetual bonds) w as 10.9% yoy, the best 1Q start to the year
since 1Q14’s 16.1% yoy. 1Q22 net profit comprised 30% of our FY22F net profit forecast.
1Q22 ROE rose again, up 28bp yoy to 13.6%, after FY21’s ROE expanded for the first
time in eight years (See Asset quality standing out, dated 25 Mar 2022).
What we liked about the FY21 results
i) In addition to the strong 1Q22 net profit growth and rising 1Q22 ROE, w e also like
1Q22’s non-performing loan (NPL) ratio of 1.35%, -4bp qoq, with 1Q22 NPLs down 0.9%
qoq (-6.5% yoy); ii) 1Q22 credit cost was 1.58% of average loans (-22bp yoy), with
impairment loss expenses down 6.8% yoy; iii) 1Q22 net interest margin (NIM) w as
2.02%, +1bp qoq (but -11bp yoy).
What we did not like about the results
i) 1Q22 core Tier 1 ratio w as 8.66% (-19bp qoq; +7bp yoy). This was because of
increased 1Q22 risk-weighted-asset (RWA) intensity, w ith 1Q22 RWA-to-total-assets
ratio at 74.1%, +1.9% pts qoq and +1.3% pts yoy; ii) 1Q22 cost-to-income ratio was
25.6%, +95bp yoy; iii) 1Q22 pre-provisioning operating profit growth was only 2.6% yoy
(albeit a slight improvement from FY21’s +0.9% yoy); iv) 1Q22 fee income grew 4.1% yoy
(FY21: +24.4% yoy). 1Q22 non-interest income rose 17.1% yoy (FY21: +26.5% yoy), w ith
1Q22 net trading income up 46% yoy (FY21: +31.1% yoy).
What else was interesting about the results
i) 1Q22 provisioning coverage ratio w as 184.2% (+4.1% pts qoq; -1.7% pts yoy); ii) 1Q22
loan-to-deposit ratio w as 100.6% (-1.9% pts qoq); iii) 1Q22 loan grow th yoy w as 6.6%
(4Q21: +8.6%) and up 2% qoq w hile 1Q22 deposit grow th yoy w as 5.9% (4Q21: +4.6%)
and up 3.9% qoq;i v) 1Q22 effective tax rate w as 17% (+2.1% pts yoy).
Reiterate Add rating; FY22F-24F EPS & TP of Rmb4.90 unchanged
We value CITIC-A using a stress-test-adjusted GGM after factoring in historical valuation
premiums . Potential re-rating catalysts are improving asset quality and economic
recovery. Key dow nside risks: a w orse-than-expected NIM trend and greater social
responsibilities.