DBS: Agricultural Bank of China Ltd – Hold Target Price HK$3.10

<Earnings first take> ABC (1288 HK) 1H22 results in line with market expectation

What’s new 

• ABC (1288 HK) reported 1H22 net earnings of c.Rmb 129bn, or 5.5% y-o-y growth, in line with consensus expectation of c.Rmb 255bn for FY22F
• Revenue increased by 5.8% y-o-y to Rmb 387.7bn, among which NII increased by c.6% y-o-y to Rmb 300.2bn. Fee income increased by 2.7% y-o-y to Rmb 49.5bn.
• NIM dropped by 10bps y-o-y or 7bps q-o-q to 2.02%. Asset yield dropped by 3bps y-o-y to 3.66% while funding costs increased by 7bps y-o-y to 1.80%.
• Total loan increased by 14% y-o-y to  Rmb 18.8tr. Deposit increased by 10% y-o-y to Rmb 24.1tr.
• NPL ratio dropped by 2bps from FY21’s level or flat q-o-q to 1.41%. Special mention loan ratio dropped by 2bps h-o-h to 1.46%. Provision coverage ratio increased from 299.73% in FY21 to 304.91% in 1H22.
• ROA/ROE dropped by 4bps/46bps y-o-y to 0.84/11.94% respectively.
• CET-1/CAR ratio dropped by 33bps/4bps to 11.11/17.09% respectively from FY21’s level.

Our view: 

• ABC 1H22 earnings growth is largely in line with market expectation. As one of the Big Four, it showed high loan growth in 1H22 despite of the weak credit demand. We expect the positive trend to carry on into the rest of the year. However, the funding cost was showing an increasing trend, which might bring more NIM pressure to the bank.
• Asset quality is better than expected with a dropping NPL. NPL ratio in property sector increased by 58bps h-o-h to 3.97% while the overall NPL ratio for corporate loans dropped by 8bps h-o-h to 2.14%.
• We have HOLD with TP at HK$ 3.1 on the counter. TP under review.