Summary

-According to 3Q results of ICBC (or the Group) this year, by the end of Sep, net profit was RMB221.761 billion, up slightly 0.59% y-y, equivalent to the EPS of RMB0.62. The profit growth declined quarter by quarter, in line with our previous expectation;

-The decreased profit growth was mainly because of the decrease of incomes, net interest incomes and intermediate business incomes increased by 4.7% and 10.2% y-y to RMB379.945 billion and 111.183 billion respectively. Meanwhile, the impairment loss would continue to increase significantly, which is one of main reasons of the large decrease of net profit;

-Total assets increased by 7.25% to RMB22.10 trillion compared to the end of 2014, remained the stable growth, and the BVPS achieved to RMB4.62, up 9.22%;

-The asset quality of ICBC continued to go down. By the end of 3Q2015, the NPL ratio increased largely by 0.31ppts to 1.44%, and we expect it would be around 1.50% in 2015, while the coverage ratio went down 49.27ppts to 157.63%;

-In all, ICBC's performance met our expectation, and faces two main issues, one is the decrease of the profit growth, and the other is the deterioration of the asset quality, however, we expect the Group's profit would increase slightly in 2015, but it will go down in the next two years. Considering the large decrease of the share price recently, the valuation becomes attractive, and we give ICBC's 12-m target price at HK$6.00, around 31% higher than the latest closing price, equivalent to 6.5xP/E and 0.9xP/B in 2016 respectively. Upgrade to Buy rating. (Closing price as at 16 Dec 2015)

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 may decrease largely affected by the market environment in the short term if the U.S. increased interest rates.

FINANCIALS

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