Industrial Bank Co.Ltd(601166) (601166)
Convertible bonds passed the meeting smoothly and are expected to be issued at the end of the year or early next year
On December 6, 2021, Industrial Bank Co.Ltd(601166) was approved by the CSRC to publicly issue A-share convertible bonds of no more than 50 billion yuan. If the average price of recent stock transactions of the company and the audited net assets per share and par value of shares at the end of the latest period are estimated to be the higher value, the conversion price of this convertible bond will be 25.50 yuan / share. It is expected to be issued at the end of this year or early next year.
The company has abundant core Tier-1 capital and is confident in accelerating development
By the end of 2021q3, the company’s core tier 1 capital adequacy ratio had increased by 34bp to 9.54% month on month, ranking second among listed stock banks. Although the company was included in the first list of systemically important banks in China in October this year and faced the regulatory requirement of 8.25% of the core Tier-1 capital adequacy ratio, there was still about 1.29pct of regulatory buffer space at the end of Q3, and the core Tier-1 capital was at a relatively abundant level. According to the static calculation at the end of 2021q3, if all 50 billion yuan of convertible bonds are converted into shares, the core tier 1 capital adequacy ratio will increase by 0.82pct to 10.36%, which is above the medium level of listed banks, and the capital ammunition will be effectively supplemented. At present, with abundant core Tier-1 capital, the company took precautions to promote the issuance of convertible bonds and replenish the follow-up capital, which fully demonstrated the firm determination and confidence of the company to accelerate scale expansion, accelerate strategic transformation and long-term development.
Slightly diluting profit indicators in the short term and opening up business growth space in the long term
In the short term, the conversion of convertible bonds into shares will dilute the profit indicators. Assuming that the convertible bonds are issued at the end of this year and the conversion price is 25.5 yuan / share, Dividends remained at last year’s level (0.8 yuan / share) will remain unchanged. When all shares are converted at the end of next year, the conversion price will be adjusted to 24.7 yuan / share, and the net profit attributable to the parent company in 2021 and 2022 will increase by 24.1% and 15.5% respectively year-on-year, so after the conversion of convertible bonds into shares in 2022, roe, BVPs and EPS will decrease by 1.32pct, 68BP and 39bp to 13.09%, 31.70 yuan / share and 4.01 yuan / share respectively. However, in the medium and long term, the conversion of convertible bonds into shares is expected to open the gap between the company and other shares The capital gap of the branch has formed a leading advantage, helped the company’s strategic transformation and opened up business growth space.
Solid fundamentals and promising prospects for strategic transformation
From a fundamental point of view, the company has successfully resisted the impact of the epidemic. As of the end of Q3, the non-performing rate has declined for four consecutive quarters, the non-performing rate + concern rate is at a low level of listed banks, and the stock risk has been continuously resolved. Good asset quality and abundant capital have laid a solid foundation for the company’s strategic transformation and development. The company continued to empower the three golden business cards of “green bank, wealth bank and investment bank”, made full efforts in the field of green finance, significantly increased the balance of green financial financing on and off balance sheet, and blossomed in multiple points of comprehensive financial services. With the continuous promotion of the “3060 goal” of carbon peak and carbon neutralization, the demand for low-carbon investment, including technological transformation, is expected to gush out, and the company has broad development space in the future.
Investment suggestion: the issuance of convertible bonds helped accelerate the transformation and efficiency, and maintained the “buy” rating
The company has solid fundamentals. The issuance of convertible bonds will further supplement capital and catalyze the company to actively integrate into the development wave of green finance. Under the condition of abundant capital, the company makes good advance, and speed-up and efficiency increase are just around the corner. We expect the company’s performance growth rate to be 24.1% / 15.5% / 16.1% from 2021 to 2023 respectively. With reference to its 1.60 times consensus forecast Pb valuation of the standard bank China Merchants Bank Co.Ltd(600036) in 2022, we give it a target valuation of 1.1 times Pb, and the target price is raised from 25.69 yuan / share to 35.49 yuan / share, maintaining the “buy” rating.
Risk tip: the epidemic situation is repeated, the economic downturn is higher than expected, and the progress of convertible bond issuance and equity conversion is lower than expected
