Summary

-In 1Q2015, BOCQ's net profit achieved to RMB897 million, up 13.54% y-y, maintained the stable growth;

-Assets increased slightly. As at the end of 1Q2015, the Group's total assets increased by 2.23% to RMB280.6 billion compared with the end of 2014, with the BVPS of RMB6.23, increased by 6% approximately;

-Dual-increase of the amount and ratio of the NPLs obviously, the amount increased largely by RMB229 million to RMB961 million, and the ratio grew 0.17ppts to 0.86%. The coverage ratio decreased largely by 44.14ppts to 274.73%;

-Although BOCQ's asset quality went down, considering the better-than-expected profit performance, the assets and profits increase stably, with the obvious local competitive advantages in Chongqing, we increase BOCQ's 12-month target price to HK$9.20, around 17% higher than the latest closing price, equivalent to 5.3xP/E and 0.9xP/B in 2016E respectively. Maintain “Accumulate” rating. (Closing price as at 11 May 2015)

Stable profit growth and employee stock ownership scheme enhances competitiveness

As at the end of 1Q2015, BOCQ's net profit achieved to RMB897 million, increased by 13.54% y-y, equivalent to the EPS of RMB0.33, up 13.54% y-y.

The main reason of BOCQ's strong profit growth is the large increase of incomes, especially for interest incomes, better than the peers. During the same period, the Group's net interest income increased largely by 13.15% y-y to RMB1.669 billion. Additionally, benefited from the market development, the bank's net fee and commission income also increased significantly by 169.59% y-y to RMB399 million.

However, we note that the Group's impairment losses increased sharply due to the deterioration of the asset quality with the dual-decrease of the amount and ratio of the NPLs. NPLs increased by RMB229 million to RMB961 million, and the ratio grew 0.17ppts to 0.86%. Meanwhile, the coverage ratio decreased largely by 44.14ppts to 274.73%. Therefore, in 1Q, the Group's impairment losses grew sharply 312.8% y-y to RMB355 million. We believe it will continue to increase, which would affect the profit growth in future.

Due to the large growth of loans in 2014, net loans increased by 17.5% y-y, with the large capital consumption, BOCQ's CAR decreased obviously, but it increased slightly in 1Q2015. The Group's Core Tier-1 CAR and CAR were 9.87% and 11.19% respectively, up 0.24ppts and 0.19ppts compared with that of 2014. Overall, CAR was still at the low level, representing the large capital pressure, which may affect some businesses with the large capital consumption, such as loans. Therefore, net loans increased only by 4.3% to RMB108.63 in 1Q2015. We expect the loan growth of BOCQ would go down this year.

In all, the bank's operating performance meets our expectation, and we believe its profits would continue to increase largely, and net profit may increase by over 15% this year. Considering the current bull market, the profits of BOCQ would continue to increase stably, although the bank's profit growth would go down in the next two years, and may also face the deterioration of the asset quality due to the large growth of both the amount and ratio of NPLs, we hold the positive view on the bank's future performance, and increase the 12-M TP to HK$9.20, 17% higher than the latest closing price approximately, equivalent to 5.3xP/E and 0.9xP/B in 2016E respectively, and considering the current price level, maintain Accumulate rating.

Risk

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

The growth of interest incomes and intermediate business incomes goes down continually;

Share price decreases sharply in the short run.

FINANCIALS

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