Industrial and Commercial Bank of China

Company description


Industrial and Commercial Bank of China (ICBC) is the largest commercial bank in China in terms of assets, loans and deposits. As of the end of 1Q 2017, it had total assets of CNY25 trillion, total loans of CNY14tn, and total deposits of CNY19tn, implying a market share of 12% in loans and 12% in deposits. It has more than 16,500 branches in China and more than 400 branches overseas as of the end FY2016. ICBC is a leading provider of commercial banking services and has a dominant position in consumer and corporate banking segments.


Investment thesis


ICBC’s diversified business mix, strong balance sheet and high profitability makes it a quality bank capable of enduring China’s tempered economic growth.


Investment summary


  • PPOP growth driven by margin expansion and fee income– Net interest margin (NIM) is up 10bp y/y to 2.3% but stayed flat sequentially, which was in-line with other large banks’ performance. Fee income up 3% y/y but growth momentum picked up in 2Q18. Deposits growth was also stronger than its peers which rose 9% y/y.

  • Stable asset quality – Non-performing loan (NPL) ratio stayed flat at 1.54% as of 1H18, ahead of industry average. NPL coverage and loan reserve coverage ratios improved further to 173% and 2.7% respectively. Capital position remains strong with Common Equity Tier 1 and Capital adequacy ratios at 12.3% and 14.7% respectively, higher than its peers.

  • A well-balanced set of results, Maintain Buy – ICBC should continue to benefit from its stronger deposit franchise as evidenced by its strong deposits growth. Valuation is attractive at 5.2% dividend yield and 0.7x forward PB which is at the low-end of its trading range. The Chinese government has reiterated deleveraging will be a policy focus, we believe its implementation will be offset by the slowdown of domestic growth and will likely be impacted by trade friction. We forecast Chinese banks will be range bound in the near-term. We lower our Fair Value to HK$7.15 with a lower PB multiple of 0.9x, which is at historical average level.

  • Slowdown in macroeconomic growth, particularly in rural areas, is less pervasive as expected

  • Further improvement in asset quality

  • Better-than-expected stabilisation in net interest margin trend

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