Earnings outlook to mildly improve

ICBC (1398 HK / 601398 CH, BUY) Diversified Financials Sector Nov 29, 2023 1 ICBC (1398 HK / 601398 CH) Company Report Earnings outlook to mildly improve ggghggeeevvdddddddBUYstrengthproven stability Nov 29, 2023 ▪ Expect topline growth to turn positive in FY24E; assume NIM pressure to reduce ▪ Project net fee income to decline in FY23E-24E and recover in FY25E ▪ Asset quality outlook less of a concern; expect mild improvement in risk buffers ▪ Reiterate BUY on improving earnings outlook. Our GGM- based H/A shr TPs imply target 24E P/B of 0.45x/0.55x Rating (H): BUY Rating (A): BUY TP (H): HK$ 4.91 TP (A): RMB 5.61 Analyst : Johannes Au Tel: (852) 2147 8802 johannesau@abci.com.hk Topline growth to gradually recover in FY24E. Despite the weak topline momentum in 9M23, our base case suggests ICBC’s topline growth to turn positive starting from FY24E. With interest rate adjustment in residential mortgage completed in 4Q23, we believe NIM pressure will lessen from FY24E, partly also supported by ICBC’s solid balance sheet growth as a result of backing up real economy. For FY23E, NIM would be down 32bps YoY; but the reduction would be much smaller at 9bps and 7bps YoY for FY24E and FY25E; overall, we expect NIM to be 1.44%-1.60% over FY23E-25E. This would support a NII CAGR of 3.8% in FY22-25E. We assume net fee income growth to turn positive in FY25E, considering the policy stance directing big banks to reduce fee rates, as well as the unfavorable capital market and slow recovery in retail consumptions. Overall, we anticipate a topline CAGR of 2.9% over FY22-25E. Asset quality outlook to stay benign. With the rollout of supportive measures for the real estate sector, we expect the bank’s asset quality outlook to remain benign in FY23E-25E. Its NPL ratio would be in the range of 1.31%-1.35%, which is lower than the system average of 1.61% as of Sep 2023, according to the NAFR. The declining NPL ratio would support risk buffers, and our base case estimates ICBC’s provisioning ratio and provision coverage ratio to be in the range of 2.98%-3.10% and 220.74%-236.64% in FY23E-25E. Assuming China’s macro growth to recover steadily without any new major risk outbreaks, we project provision expenses to expand at 1.3% CAGR over FY22-25E. (Continue next page) Results and Valuation FY ended Dec 31 2021A 2022A 2023E 2024E 2025E Revenue (RMB mn) 860,880 841,441 822,862 858,865 917,065 Chg (%,YoY) 7.6 (2.3) (2.2) 4.4 6.8 Net profit* (RMB mn) 348,338 360,483 362,146 371,745 396,436 Chg (%,YoY) 10.3 3.5 0.5 2.7 6.6 EPS (RMB) 0.95 0.97 0.97 1.00 1.07 Chg (%,YoY) 10.3 2.0 0.5 2.8 6.9 BVPS (RMB) 8.15 8.81 9.47 10.15 10.76 Chg (%,YoY) 8.8 8.2 7.5 7.2 6.0 P/E (x) – H-shr 3.70 3.62 3.61 3.51 3.28 P/B (x) – H-shr 0.43 0.40 0.37 0.35 0.33 P/E (x) – A-shr 5.04 4.94 4.92 4.78 4.47 P/B (x) – A-shr 0.59 0.54 0.51 0.47 0.45 ROAA (%) 1.02 0.96 0.85 0.77 0.73 ROAE (%) 12.15 11.43 10.66