China Merchants Bank Co (3968 HK)
Current shareprice: HKD37.30
Target price: HKD38.97
Potential yield: +4.5%
We maintain a BUY action on this counter. Let’s take a look at the insights of the bank.
China Merchants Bank Co., Ltd. (the Bank) is a China-based commercial bank. The Bank operates its businesses through three segments, which are Wholesale Finance segment, Retail Finance segment and Other segment. Wholesale Finance segment consists of savings and loans; settlement and cash management services; trade finance and offshore business; investment banking; interbank lending, buyback and other interbank business; asset custody business; financial market business and other businesses. Retail Finance segment includes savings and loans, bank card services, wealth management, private banking and other services. Other segment consists of investment real estates and the operations of the Company’s subsidiaries, affiliated companies and joint venture companies. The Company operates its business in domestic market and to overseas markets, with China as its main market.
Revenues and profits:
In August 2019, China Merchants Bank’s (CMB) revenue grew 10% while net profit rose 14%. Interest income, non- interest income and pre-provision operating profit (PPOP) registered strong growths of 11%, 8% and 7% respectively in the same month. Fee and commission income grew 7%, slightly slower than growth in non-interest income. Cost-to-income ratio (CIR) rose to 28%.
Improvement in asset quality:
As at end-3Q19, CMB’s NPL ratio stood at 1.%, which has declined in bp since the start of 2019. NPL balance
declined 5% while provision balance grew 17%. Higher provision balance and declining NPL led to a increase in provision coverage ratio too.
NIM:
9M19 NIM was above 2.4%. However, we believe CMB still faces pressure on NIM compression. The team guided that NIM compressions would come in the face of declining loan rates and rising cost of acquiring deposits.
Asset expansions:
Total loan growth was lifted by strong growth in retail loans. As at end-3Q19, retail loans constituted 53% of CMB’s total loans. Total loans have grown 11% since the start of 2019 while deposits have grown 8% since the start of 2019. As at end-3Q19, current deposit made up 53% of CMB’s total deposits.
Healthy outllook:
In 9M19, commission income from wealth management
business came in at Rmb18.8b. Income from agency distribution of trust schemes amounted
to Rmb5b, income from agency distribution of insurance policies amounted to also approximately Rmb5b, income from entrusted wealth management services amounted to Rmb4b, income from agency distribution of funds amounted to Rmb3b while income from agency distribution of precious metals amounted to Rmb94m.
Reuters:
https://www.reuters.com/companies/3968.HK
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