Stable profit growth

According to 3Q results of ICBC (or the Group) last year, by the end of Sep, net profit was RMB220.464 billion, up 7.26% y-y, equivalent to the EPS of RMB0.63. The profit growth declined quarter by quarter.

The decreased profit growth was mainly because of the decrease of net interest incomes and intermediate business incomes, which increased by 10.77% and 5.64%y-y respectively. The decrease rate of intermediate business incomes was higher than our previous expectation.

Total assets increased by 6.52% to RMB20.15 trillion compared to the end of 2013, remained stable growth, and the BVPS was RMB4.06, up 11.85%.

The asset quality of ICBC started to decrease caused by the large expansion of loans in recent years. By the end of 3Q2014, the NPL ratio increased by 0.13ppts to 1.06%, and we expect it would be around 1.05% in 2014. NPLs amounted to RMB115.471 billion, increased largely by RMB21.782 billion compared with the end of 2013. Coverage ratio went down 38.43ppts to 216.60%.

In all, ICBC's performance still maintains stable, and faces two main issues, one is the risk of the deterioration of the asset quality, and the other is the capital pressure, but we expect it should be decrease after the issuance of the preferred stock in 2015. Considering the large increase of the share price recently, we hold a cautious view for the price performance in the short term, but increase ICBC's 12-m target price to HK$6.70 based on 5% discount of its intrinsic value from 3-stage DDM, around 15.5% higher than the latest closing price, equivalent to 6.2xP/E and 1.1xP/B in 2015 respectively, the valuation is quite reasonable. Maintain Accumulate rating.

Due to the tightening monetary policy in the whole year of 2014, the growth of the bank's interest incomes slowed down continually, and meanwhile, the asset quality trended to go down, therefore we expect the impairment losses would maintain at the rapid growth, which grew 13.4% y-y in 3Q2014, and would increase by 14% y-y as expected in 2014, in line with our estimation. ICBC's net profit would only increase by 5% y-y in 2014.

The asset quality went down

The asset quality of ICBC started to decrease caused by the large expansion of loans in recent years. By the end of 3Q2014, the NPL ratio increased by 0.13ppts to 1.06%, and we expect it would be around 1.05% in 2014. NPLs amounted to RMB115.471 billion, increased largely by RMB21.782 billion compared with the end of 2013. Coverage ratio went down 38.43ppts to 216.60%.

Risk

Lower-than-expected growth of main business incomes;

The deterioration of the asset quality due to the sharp growth of the NPLs;

Share price decreases largely affected by the market environment.

FINANCIALS

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