Returning to low-mid single-digit growth
- 1H22 net profit growth of 5.7% yoy (2Q22: 3.3% yoy; 1Q22: 7.6% yoy) returned to the low-mid single-digit growth range of FY15-FY20.
- 1H22 PPOP growth was 4.9% yoy (2Q22: 3.9% yoy), with pressure both from falling NIMs and slower fee income growth yoy (2Q22: 0%; 1Q22: 4%).
- 2Q22 NIM declined 17bp qoq and 18bp yoy, worse than 1Q22’s -5bp qoq and -5bp yoy and we expect NIM to continue to fall in 2H22F.
- Reiterate Add rating with an unchanged TP of HK$4.40.
Returning to low-single digit growth after a strong FY21
1H22 net profit rose 5.7% yoy, with 2Q22 net profit up 3.3% yoy, mainly driven by preprovisioning operating profit (PPOP) growth (1H22: 4.9% yoy; 2Q22: 3.9% yoy). 1H22 net
profit comprised 50% of our FY22F net profit estimate.
What we liked about the results
i) 2Q22 non-performing loan (NPL) ratio was 1.41%, -1bp qoq and -9bp yoy. 1H22 mix of loans over 90 days overdue was 0.6%, -4bp hoh, with 1H22 mix of loans under 90 days overdue at 0.40%, -3bp hoh. 1H22 special mention loans ratio was 1.45%, -3bp hoh; ii) 1H22 credit costs were 1.18%, -4bp yoy; iii) 2Q22 loan-to-deposit ratio (LDR) was 78%, +0.8% pt qoq and +2.6% pts yoy; iv) 2Q22 risk-weighted-assets-to-total-assets was 58.2%, -1.6% pts qoq and -3.7% pts yoy; v) 1H22 NPL recognition ratio was 234%, +11% pts hoh; vi) 2Q22 net trading income rose 229% yoy (1Q22: -92%), with it comprising 6% of 2Q22 total income (1Q21: 2%; FY21: 4%); vii) 1H22 bank card growth yoy was 12.6% (2H21: 5%, FY21: 5%); and viii) 2Q22 core Tier 1 ratio was 11.4%, +40bp yoy.
What we did not like about the results
i) 2Q22 net interest margin (NIM) was 1.92%, -17bp qoq; ii) 1H22 cost-to-income ratio was 32.5%, +0.6% pt yoy; iii) 2Q22 provisioning coverage ratio was 294%, -14% pts qoq, +19% pts yoy. 2Q22 loan loss reserve (LLR) to loans was 4.13%, -18bp qoq; iv) 1H22 demand deposit mix was 49.2% (-2.7% hoh, -3.5% yoy); v) 2Q22 net fee income yoy growth was 0% (1Q22: 4%, 1H22: 3%); and vi) 1H22 ROE was 12%, -46bp yoy.
What else we thought was interesting about the results
i) 2Q22 core Tier 1 ratio was 11.1%, +26bp yoy and -25bp qoq; ii) 1H22 mix of mortgages was 28.4%, -212bp hoh; iii) 1H22 group mortgages rose 8.4% yoy (2H21: 12.4%). 2Q22 county area loan growth yoy was 17.3% (1Q22: 17.1%; 1H22: 17.3%). 2Q22 loan growth yoy was 13.8% (1Q22: 13%, 4Q21: 13.2%). 2Q22 discounted bills grew 131% yoy; and iv) 1H22 effective tax rate was 17.5%, -2.5% pts yoy.
Reiterate Add; TP unchanged at HK$4.40; 71% potential upside
We value ABC via a stress-test-adjusted GGM. Our FY22F-24F EPS forecasts are unchanged. Potential re-rating catalysts: better asset quality and economy. Key downside risks: worse-than-expected NIM and greater social responsibilities (see p.3 for details)