Summary

-According to 1Q Results of China Construction Bank (CCB or the Group), by the end of March, the Group's net profit was RMb67.005 billion, up 1.86% y-y slightly, lower than our previous expectation, equivalent to the EPS of RMB0.27, mainly due to the large growth of cost, especially for impairment losses, increased sharply by 73.1% y-y. We believe CCB's profit growth would maintain at the stable level in 2015;

-On the other hand, the quality of CCB's loans went down continually. In 1Q2015, the Group's net loans increased by 3.5% to RMB9.55 trillion. Due to the downstream of economy, the bank's NPLs continued to increase, NPL ratio increased largely from 1.19% in 2014 to 1.30%. Meanwhile, the converge ratio decreased from 222.33% to 207.23%. However, this trend met our expectation, and we believe the asset quality will continue to go down in future, both the amount and ratio of NPLs would increase, and the NPL ratio would be around 1.54% in 2015;

-However, we note that CCB's CAR increased obviously, located at the leading position among the peers, Core Tier-1 ratio and CAR increased by 0.39ppts and 0.1ppts respectively compared with the end of 2014, representing the easing of the bank's capital pressure, in line with expectation;

-Overall, CCB's business performance maintains stable, the profit growth slows down and the loan quality continues to go down, but the capital pressure declines, which would be helpful for the future development. Considering the sharp decrease of the share price, we estimate CCB's 12-m TP to HK$8.00, around 13% higher than the latest closing price, equivalent to 6.0xP/E and P/B0.9x in 2016E respectively, the valuation is attractive. Maintain Accumulate rating. (Closing price as at 30 June 2015)

FINANCIALS

Click Here for PDF format...