Back to delivering stable outcomes
- 1H22 net profit was up 2.7% yoy (2Q22: -0.6%; 1Q22: 5.7%), supported by a lower effective tax rate (1H22: 17.5%, -3.4%-pts yoy).
- This marks a return to low-mid single-digit net profit growth seen over the FY15–FY20 period, with FY21’s double-digit net profit growth an anomaly.
- 1H22 PPOP growth yoy slowed to 3% (2H21: 5%; 2Q22: -1%; 1Q22: 6%), due to lower NIM, weaker fee income and a rising cost-to-income ratio.
- Reiterate an Add rating. Unchanged TP of HK$5.90.
1H22 saw a return to stable profits, after a strong FY21
1H22 net profit was up 2.7% yoy (2Q22: -0.6%; 1Q22: 5.7%), supported by a lower effective tax rate (1H22: 17.5%, -3.4%-pts yoy). Before deduction for payments to holders of preference shares and perpetual bonds, 1H22 net profit rose 4.9% yoy (2Q22: 4%; 1Q22: 5.7%). We believe that this marks the return to low-mid single-digit net profit growth that we had seen over the FY15–FY20 period, with FY21’s double-digit net profit growth an anomaly. 1H22 net profit comprised 46% of our FY22F estimate.
What we liked about the 2Q22 results
i) 2Q22 non-performing loan (NPL) ratio was 1.41%, -1bp qoq. 1H22 mix of loans over 90 days overdue was 0.84%, -4bp hoh. However, 1H22 mix of loans under 90 days overdue was 0.36%, +1bp hoh. 1H22 special mention loans ratio was 1.87%, -12bp hoh; ii) NPL recognition standards tightened further, with 1H22’s NPL recognition ratio (NPLs/loans over 90 days overdue) at 168%, +7.4% pts hoh and +15.9% pts yoy; iii) 2Q22 core Tier 1 ratio was 13.3%, +40bp yoy and the second highest of the banks under our coverage; iv) 1H22 credit costs were 0.92%, -15bp yoy; v) 1H22 effective tax rate was 17.5%, -3.4%- pts yoy (2Q22: 16.9%,-4.6%-pts yoy).
What we did not like about the 2Q22 results
i) 2Q22 net interest margin (NIM) was 1.96%, -14bp qoq & -16bp yoy; ii) 1H22 cost-toincome ratio was 23.2%, up 1% pts yoy; iii) 2Q22 net fee income fell yoy by 1.2% (1Q22: +1.2%; 1H22: 0.1%); iv) 2Q22 pre-provisioning operating profit (PPOP) fell yoy by 1% yoy (1Q22: +6% yoy); v) 2Q22 loan-to-deposit ratio (LDR) was 76.3%, -0.9%-pts qoq.
What else we thought was interesting about the 2Q22 results
i) 2Q22 provisioning coverage ratio was 207%, -3% pts qoq; ii) 1H22 mortgage mix was 28.9%, -192bp hoh. 1H22 mortgages rose 1.4% hoh and 6.9% yoy; iii) 1H22 group corporate loans rose 10% yoy and 9.1% hoh; iv) 1H22 personal business loan growth yoy was 25% (FY21: 34.7%; 1H21: 51%; FY20: 50.8%; FY19: 60.1%; FY18: -0.1%), and comprises 3.7% of 1H22 loans; v) 2Q22 loan growth yoy was 11.7% (1Q22: 10.9%).
Reiterate Add rating; Unchanged TP of HK$5.90
We value ICBC using a stress-test adjusted GGM. Potential re-rating catalysts are improving asset quality and economic recovery. Key downside risks: a worse-than-expected NIM trend and greater social responsibilities.