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雷达卡
China: Banks
Adjusting estimates; what to watch; upgrade BoCom (H) to Neutral
Marked 2008E earnings to markets; refined 2009E/10E earnings
We have reduced our 2008E earning estimates for banks (excluding
BOC/SZDB) by an average of 6%, mainly because we think banks may
conservatively raise provision coverage on NPLs and non-credit assets in
4Q08. We have also refined our 2009E-10E estimates by modestly reducing
NIM assumptions, and reported NPL formation forecasts in 2009E as
strong loan growth delays the NPL cycle and its recognition.
2Q09 macro/earnings critical to watch for direction
We believe there are many upside/downside risks/events for China banks
to watch out for in 2Q09. Key upside risks include: the sustainability of
China property transaction volume recovery, and the progress of US/EU
banks’ recap and signs of macro stabilization. The downside risks include:
1) potentially weak yoy GDP growth rates for US/China in 2Q09, and their
impact on China corporate earnings, sustainability of loan growth, and rate
cut/interest rate deregulation prospects; and 2) weak 1Q09 China bank
earnings growth momentum mainly on sharp yoy/qoq NIM contraction,
which has been partly expected by markets.
Upgrade BoCom(H) to Neutral on valuation
We retain our Neutral sector stance and still prefer China H-share banks
among regional banks, given their strength in capital, liquidity, and PPOP
profitability; reasonable valuation at average 1.3X 2009E P/B and 8X 2009E
P/E; and relatively strong macroeconomy in China.
We upgrade BoCom H-shares (3328.HK) to Neutral from Sell on reasonable
valuation at 1.2X 2009E P/B, its benefit from strong infrastructure loan
growth, and no foreign strategic shareholder sale pressure.
We keep our ratings unchanged for other banks. We have also tweaked
our 12-month target price to reflect our earnings revisions.
Table of contents
Marking earnings estimates to market on lower NIM & lower reported NPLs 3
Tweaking target prices to reflect new estimates for 2009E-11E and higher COE for H-share banks 8
Upgraded BoCom H-shares to Neutral 10
Disclosures 25
The prices in the body of this report are based on the market close of March 12, 2009.
Exhibit
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