9/F, 10 Des Voeux Road Central, Hong Kong. Dealing: 3608 8000 Research: 3608 8097 Facsimile: 3608 6113 HONG KONG RESEARCH Analyst: Paul Sham 6 th April 2011. CHINA CITIC BANK CORPORATION LIMITED ( 中信銀行 ) Sector : Banking Chairman : Mr. Kong Dan HKSE Code : 00998 Market Price : HK$5.68 (06/04/2011) President : Mr. Chen Xiaoxian Shares Issued : 12,401.8m (H shares) Mkt. Cap. : HK$70,442m (H shares) Vice Chairman : Mr. Chang Zhenming 52 weeks Hi/ Lo : HK$6.26 / HK$4.16 HSI : 24,285.05 / 13,657.63 (06/04/2011) Main Business : Banking and related financial services SUMMARY OF THE FINAL RESULTS FOR THE YEAR ENDED 31 ST DECEMBER 2010 Final Results Highlights RMB million Vs FY2009 (%) Vs 30/06/2010 (%) Net interest income 48,135 +33.8% Non-interest income 8,221 +64.5% Total operating income 56,356 +37.5% Operating expenses (22,638) +18.3% Operating profit before impairment losses 33,718 +54.3% Impairment losses on loans and advances (4,238) +73.3% Profit before taxation 28,695 +49.0% Taxation (6,916) +155.7% Attributable profit to equity holders 21,509 +50.2% Total loans 1,264,245 +18.6% +6.0% Total deposits 1,730,816 +29.0% +6.2% Total assets 2,081,314 +17.3% +7.3% Basic EPS (RMB) 0.55 +48.6% Final DPS (RMB) 0.00-100.0% Selected Ratios FY2010 FY2009 1H2010 Net interest margin 2.63% 2.51% 2.60% Cost-income ratio 40.2% 46.7% 37.1% Return on average assets 1.13% 0.94% 1.17% Return on average equity 19.3% 12.9% 20.1% NPL ratio 0.67% 0.95% 0.81% NPL coverage ratio 213.5% 149.4% 169.9% Loan-deposit ratio 73.0% 79.4% 73.2% Capital adequacy ratio 11.3% 10.1% 11.0% FY10 results above expectation China CITIC Bank ( CNCB ) reported FY10 net profit of RMB21,509m, up 50.2% y-o-y, which is above market consensus of RMB20,732m. Positive NIM progression, strong non-interest income growth, improving cost efficiency and benign asset qualities are the key factors for the solid results. Nevertheless, CNCB did not propose any dividend for 2010 which is a major negative in its FY10 results. Market watchers expect a possible rights issue planned in 2Q11. Net interest income supported by widened NIM Net interest income grew 33.8% y-o-y, driven by 12bps y-o-y increase in net interest margin (NIM) and 18.6% y-o-y rise in loan portfolios. The average yield of interest-earning assets of CNBC rose slightly by 4bps while the average cost of interest bearing liabilities fell 11bps. As a result, the bank s net interest margin stood at 2.63%, up by 12bps. This report has been prepared solely for information purposes and we, East Asia Securities Company Limited are not soliciting any action based upon it. Neither this document nor its contents shall be construed as an offer, invitation, advertisement, inducement or representation of any kind or form whatsoever. This document is based upon information, which we consider reliable, but accuracy and completeness are not guaranteed. Opinions expressed herein are subject to change without notice. At the time of preparing this report, we have no position in securities of the company or companies mentioned herein, while other Bank of East Asia Group companies may from time to time have interests in securities of the company or companies mentioned herein.
Loan growth in-line with industry average Total loans increased 18.6% y-o-y to RMB1,264,245m, in-line with industry average of 19%. In regard of loan portfolio, growth of CNCB s retail loans outpaced that of corporate loans during 2010. The former surged 45.9% y-o-y while the latter grew at a slower pace of 20.6%. With a faster 29.0% total deposits growth, loan-to-deposit ratio was lowered to 73.0% as of 31/12/2010 from 79.4% as of 31/12/2009. Fee income regained pace In 2010, CNCB s net fee income rebounded from the trough of 8.4% y-o-y growth in FY09 and realized a net fee income growth of 35% y-o-y. The strong increase was primarily due to the proactive development of its intermediary business and the relatively rapid growth in items including consulting and advisory fees (+21.3%), bank card fees (+25.5%), settlement fees (+55.9%), wealth management fees (+105%), and guarantee fees (+43.7%). In addition to fee income, the bank s net gain from trading amounted RMB1,289m, an increase of RMB906m, or 237% y-o-y, which was mainly resulted from the increase in net gain from foreign currency exchange settlement. Expenses grew along with business expansion Total operating expense was up 18.3% to RMB22,638m, mainly on a 12.7% increase in staff cost and 18.4% increase in property and equipment expense as a result of the expansion of its business and the opening of new branch outlets. With operating profit recorded faster growth, cost-to-income ratio of CNCB improved to 40.2% in 2010 from 46.7% in 2009. Double dips in loan quality CNCB s loan impairment losses surged 73.3% y-o-y, the highest among peers. The bank also made RMB579mn on AFS investments and RMB338m on off-balance sheet assets in 2010. Both of these items were related to Farmington Finance Limited, a wholly owned subsidiary of CITC International Financial Holdings Limited. Despite higher provisions on loans and investment, CNCB s asset quality remained benign. The bank reported dual decline in NPL ratio and balance in 2010. Its NPL ratio dropped by 28bps y-o-y to 0.67% by end-2010 while NPL balance decreased 10.3% y-o-y. Coverage ratio further increased to 213.5% at end-fy10, up by 64.1ppts y-o-y Capital adequacy As at end-2010, CNCB s core CAR was 8.45% down by 72bps y-o-y, while total CAR stood at 11.3%, up by 59bps y-o-y. CNBC s core CAR is among the lowest in the sector as CNCB s A+H shares rights issue program initiated in June 2010 has not yet completed. But following its rights offering, CNCB s core CAR shall be boosted to around 10%. Outlook & Prospects Dividend suspended due to rights offering CNCB did not declare a cash dividend for the year ended 2010 which is a major disappointment in FY10 results. Nevertheless, Management explained during the analysts meeting that the suspension is a must to ensure smooth execution of the rights issue proposed earlier. According to CSRC regulation, if CNCB declares cash dividend, it cannot execute the rights issue before cash dividend is paid. Under such circumstance, the dividend cut in FY10 is understandable and should not cause material impact on its share prices. Uncertainty over fundraising largely removed The stock s lacklustre performance over the past few months was partly due to the fundraising overhang. Given Management guided that fund raising amount is around RMB26bn, the uncertainty over its fundraising plan should largely remove which could be a catalyst to CNCB s stock price. Shifting focus to retail business CNCB s business used to much more geared to corporate banking relative to other H-share listed peers. Nevertheless, CNCB is trying to grow its retail banking by focusing more on retail wealth management and lending opportunities, e.g. its personal loans grew at a CAGR of 39% while personal deposits grew at a CAGR of 33% in the past 5 years. Attractive valuations Trading at 1.35 FY11E P/B and 8.32x FY11E P/E, CNCB is the cheapest H- share bank in terms of P/E and P/B due to its relative inferior profitability. Nevertheless, we believe the valuations still look attractive given its established corporate franchise and unique CITIC group platform. As such, we recommend a outperform rating for the counter Recommendation: outperform 2
Appendix I I. Comparison of China CITIC Bank s loan book (by sectors): 31/12/2010 vs 31/12/2009 Loans-by industry 31 st Dec, 2010 Up/(down) 31 st Dec, 2009 RMB million RMB million Corporate loans Manufacturing 260,264 +23.7% 210,446 Transportation and logistics 124,734 +21.6% 102,557 Power generation & supplies 81,869-3.8% 85,106 Wholesale and retail 128,942 +50.2% 85,872 Property development 72,433 +56.4% 46,312 Water, environment & public utility mgt 81,205 +8.8% 74,604 Leasing and commercial services 48,444-2.9% 49,900 Other corporate loans 194,381 +15.8% 167,838 Personal loans 216,274 +45.9% 148,240 Discounted bills 55,699-41.2% 94,774 1,264,245 +18.6% 1,065,649 II. Comparison of China CITIC Bank s loan book (by geographies): 31/12/2010 vs 31/12/2009 Loans-by geographies Breakdown 31 st Dec, 2010 31 st Dec, 2009 y-o-y (%) 31 st Dec, 2010 31 st Dec, 2009 Bohai Rim 346,098 293,907 +17.8% 27.4% 27.6% Yangtze River Delta 327,534 284,055 +15.3% 25.9% 26.7% Pearl River Delta & West Strait 174,510 145,222 +20.2% 13.8% 13.6% Central Region 159,534 133,009 +19.9% 12.6% 12.5% Western region 143,237 113,499 +26.2% 11.3% 10.7% Northeastern region 41,239 34,965 +17.9% 3.3% 3.3% Overseas 72,093 60,992 +18.2% 5.7% 5.7% Total 1,264,245 1,065,649 +18.6% 100.00% 100.00% III. China CITIC Bank s pre-tax profit breakdown by businesses Operating profit by businesses Breakdown (RMB million) FY2010 FY2009 y-o-y (%) FY2010 FY2009 Corporate banking 25,797 17,999 +43.3% 89.9% 93.4% Personal banking 566 354 +59.9% 2.0% 1.8% Treasury 1,630 994 +64.0% 5.7% 5.2% CIFH 989 955 +3.6% 3.4% 5.0% Others (287) (1,036) -72.3% (1.0%) (5.4%) Total 28,695 19,266 +48.9% 100.00% 100.00% 3
Appendix II Breakdown of loan book of China CITIC Bank by sectors Breakdown of Loan Book as of 31/12/2010 Total customer advances: RMB1,264,245 million Personal loans 17.1% Discounted bills 4.4% Manufacturing 20.6% Other corporate loans 15.4% Transportation and logistics 9.9% Leasing and commercial services 3.8% Water, environment & public utility mgt 6.4% Property development 5.7% Wholesale and retail 10.2% Pow er generation & supplies 6.5% Personal loans 8.9% Breakdown of Loan Book as of 31/12/2009 Total customer advances: RMB1,065,649 million Discounted bills 13.9% Manufacturing 19.7% Other corporate loans 15.7% Leasing and commercial services 4.7% Water, environment & public utility mgt 7.0% Property development 4.3% Wholesale and retail 8.1% Transportation and logistics 9.6% Pow er generation & supplies 8.0% 4
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