\u3000\u3 Jointo Energy Investment Co.Ltd.Hebei(000600) 036 China Merchants Bank Co.Ltd(600036) )
Matters:
China Merchants Bank Co.Ltd(600036) released the first quarterly report of 2022. In the first quarter, the operating revenue was 92 billion yuan, with a year-on-year increase of 8.5%, and the net profit attributable to the parent company was 36 billion yuan, with a year-on-year increase of 12.5%, with an annualized roe19.5% 2%, a decrease of 0.3pct compared with the same period last year and an increase of 2.3pct month on month. The total assets at the end of the period were 9.42 trillion yuan, a year-on-year increase of 8.7%.
Ping An View:
Profit growth fell, and the downturn in the capital market dragged down the middle income. CMB’s net profit attributable to the parent slowed down in the first quarter, with a year-on-year increase of 12.5% (vs + 26.8%, 21q4), lower than market expectations. From the revenue side, the revenue increased by 8.5% (vs + 15.6%, 21q4) year-on-year, and the growth rate decreased significantly, which was mainly dragged down by the medium revenue. Specifically: 1) the net interest income in the first quarter increased by 10.0% (vs + 10.2%, 21q4) year-on-year, and the growth remained stable. 2) In the first quarter, the net income of handling fees and commissions increased by 5.5% (vs + 18.8%, 21q4) year-on-year. Affected by the downturn of the capital market, the growth rate decreased significantly, including the year-on-year decrease of 11.1% in wealth management income and 58.5% in sub items, which were the main drag factors. However, the growth of other sub items was still beautiful, and the financial management / insurance income increased by 29.7% / 61.6% year-on-year respectively. In other sectors, the asset management business has an excellent growth trend, and its handling fee and commission income increased by 47.6% year-on-year, accounting for 11.3% of the medium income, mainly driven by the growth of handling fee income of its subsidiary China Merchants Bank financial management and China Merchants Fund.
Debt cost optimization promoted the improvement of interest margin month on month, and loan pricing picked up month on month. The net interest margin of China Merchants Bank in the first quarter was 2.51%, a year-on-year decrease of 1bp and a month on month increase of 3bp in 2021q4. We believe that it is mainly due to the improvement of the overall debt cost and the loose liquidity at the beginning of the year. The inter-bank debt cost decreased significantly, pushing the total debt cost down 2bp to 1.58% month on month. In terms of deposits, the cost rate of deposits in the first quarter rose 2bp to 1.46% month on month (MOM) compared with 21q4. We expect that it will be mainly affected by the weak demand growth of enterprises in the economic downturn, but on the whole, CMB’s ability to attract deposits is still in the forefront of the industry. Considering that the overall growth rate of corporate loans is higher than that of q4.4% at the beginning of the year, but the overall asset concentration rate of CMB’s loans is still higher than that of q4.4% at the beginning of the year, which is mainly related to the improvement of the long-term asset concentration rate of CMB’s loans.
On the asset side, the company’s total assets increased by 8.5% (vs + 10.6%, 21q4) year-on-year at the end of the first quarter, an increase of 1.8% month on month compared with the end of 2021, of which the loan scale increased by 8.4% (vs + 10.8%, 21q4) year-on-year, and the marginal growth rate of scale slowed down. In terms of loan structure, corporate / retail loans increased by 3.99% / 1.26% month on month respectively. On the liability side, the company’s deposit scale at the end of the first quarter increased by 14.6% (vs + 12.8%, 21q4) year-on-year, maintaining a steady growth, but the average daily balance of demand deposits accounted for 63.4%, down 0.93pct year-on-year.
The bad is up month on month, and the provision is solid. The non-performing rate of China Merchants Bank at the end of the first quarter was 0.94%, up 3bp month on month, which was mainly affected by the risk exposure to the public sector. In terms of business structure, it is mainly due to the rise in the non-performing rate of corporate credit assets, the non-performing loan rate of the parent company rose 2bp to 1.33% month on month, and the risk of public real estate continued to be exposed. The non-performing loan rate was 2.57%, an increase of 1.18pct compared with the end of the previous year; The quality of retail assets is generally stable, but the non-performing rate of credit card loans increased by 7bp to 1.72% compared with the end of 2021. We believe that it is related to the adjustment policy of overdue recognition time point and the implementation of the policy of reducing non-performing loans overdue for more than 60 days, superimposed with the impact of the epidemic situation. The company disclosed that the annualized non-performing rate of Q1 was 1.16%, up 21bp year-on-year. In terms of forward-looking indicators, the concern rate at the end of the first quarter was 0.96%, an increase of 12bp compared with the end of the previous year. Due to the multi-point spread of the epidemic in China, the loan risk showed short-term upward pressure. From the perspective of risk resistance, at the end of the first quarter, the provision coverage rate of China Merchants Bank was 463%, with a month on month decrease of 21pct, a month on month decrease of 4.35% and a month on month decrease of 7bp. Although the provision fell somewhat, the absolute level was still in the forefront of the industry.
Retail AUM grew steadily and the wealth management business showed resilience. At the end of the first quarter, the company’s retail AUM increased by 18.2% (vs + 20.3%, 2021) year-on-year to 11.3 trillion. Among them, the Aum of sunflower and above and private banks decreased by 2.8pct/5.0pct to 17.5% / 17.3% year-on-year respectively compared with the end of 2021, maintaining a steady increase in double-digit growth rate, reflecting that the company’s advantage in medium and high-end customer base is still stable. At the beginning of 2022, the year-on-year growth rate of the total assets of retail customers managed by the company decreased slightly due to the downturn of the capital market, but the asset wealth management business showed strong resilience, and the number of customers and AUM still increased at a relatively rapid rate. At the same time, the company proposes to take multiple measures to adhere to the digital operation mode and the integrated service of “investment and private science”, which will bring new growth opportunities for retail bank card business, investment banking business and supply chain financial business. We are still optimistic about the sustainable development of the company’s wealth management business in the era of 3.0.
Investment suggestion: the short-term fluctuation does not change the long-term allocation value. CMB was under certain pressure in terms of profitability and asset quality in the first quarter, superimposed with the impact of management adjustment, and short-term fluctuations still need time to digest. However, we believe that from a long-term perspective, the competitive advantage of CMB in the retail end is still stable, and the long-term trend of China’s wealth management market will not change due to short-term fluctuations. As the leader of China’s wealth management, CMB’s long-term allocation value still exists. We maintain the company’s profit forecast for 22-24 years, with corresponding EPS of 5.62/6.63/7.64 yuan and corresponding profit growth rate of 18.1% / 18.1% / 15.2% respectively. At present, the corresponding share price of China Merchants Bank in 2022, 2023 and 2024 is 1.3x/1.2x/1.0x respectively, maintaining the rating of “strongly recommended”.
Risk tips: 1) the economic downturn leads to higher than expected pressure on the quality of industrial assets. 2) The decline in interest rates led to a narrower than expected industry interest margin. 3) The increase of cash flow pressure of real estate enterprises leads to the rise of credit risk.
