Another quarter, another disappointment
- 1H22 net profit fell 13% yoy, the largest decline among the banks under our coverage that have already reported 1H22 results.
- This was driven by 1H22 PPOP falling 23% yoy, driven by disappointments in NIM, fee income and its cost-to-income ratio.
- Remains our least preferred bank; maintain Hold. TP unchanged at HK$2.60.
Disappointments continue, following worst-than-peers FY20 & FY21
1H22 net profit fell 13% yoy. This continued Minsheng Bank’s (MSB) trend of disappointing results, with its FY20, FY21 and now 1H22 the worst of the banks under our coverage. 1H22 ROE thus fell to a lowest-among-peers 8.7%, down 177bp yoy, and continues to place strain on its low core Tier 1 capital ratio of 8.8%. 1H22 net profit comprises 63% of our FY22F net profit estimate.
What we liked about its results
i) 1H22 effective tax rate was 6.2% (1H21: 7.6%; 1H20: 13.0%); and ii) 1H22 credit cost was 1.17%, -70bp yoy (2Q22: 1.31%, -79bp yoy; 1Q22: 1.01%, -57bp yoy).
What we did not like about its results
i) Weakest-among-peers net profit growth, with 2Q22 net profit down 22% yoy (1Q22: 7%). Net profit before the deduction of payments to preference share and perpetual bond holders fell 7.6% yoy in 2Q22 (1Q22: -6.9%); ii) 2Q22 net interest margin (NIM) was 1.61% (-8bp qoq, -33bp yoy), with 1H22 NIM at 1.65% (-37bp yoy) and 1Q22’s at 1.69% (-41bp yoy); iii) 1H22 cost-to-income ratio was 30.2%, up 6.6% pts yoy; iv) 2Q22 provisioning coverage ratio was 140.7% (-2.4% pts qoq, -2.1% pts yoy; v) 2Q22 core Tier
1 ratio was 8.8%, down 21bp qoq but up 27bp yoy; vi) A consequence of its relatively low capital ratios is relatively slow loan growth yoy (2Q22: 4.3%; 1Q22: 4.4%; 4Q21: 5%); vii) 1H22 pre-provisioning operating profit (PPOP) fell 23% yoy (2Q22: -26%; 1Q22: -20%); viii) 1H22 demand deposit mix was 34.8% (-3.5% pts hoh; -5% pts yoy); and ix) 2Q22 net fee income growth yoy was -23% (1Q22: -21%).
What else we thought was interesting about its results
i) 2Q22 risk-weighted-assets to total assets ratio was 77.3%, down 25bp qoq and 223bp yoy, but still one of the highest among peers; ii) 2Q22 non-performing loan (NPL) ratio was 1.73%, down 1bp qoq and 7bp yoy. 1H22 special mention loans ratio was 2.69%, down 16bp hoh. 1H22 mix of loans above 90 days overdue was 1.43%, up 1bp hoh. 1H22 NPL recognition ratio was 121.2%, down 5% pts hoh. The mix of loans below 90 days overdue was 0.67% in 1H22 (-8bp hoh, +5bp yoy).
Reiterate Hold rating; TP unchanged at HK$2.60
We value MSB using a stress-test-adjusted GGM (see pg. 3). MSB remains our least preferred bank. Key upside/downside risks: a better/worse-than-expected NIM trend and fewer/greater social responsibilities.