Yum Cha 飲 茶 - · PDF file Yum Cha 飲 茶 January 28, 2014 INDICES Closing DoD% Hang Seng...

Click here to load reader

  • date post

    17-Jun-2020
  • Category

    Documents

  • view

    1
  • download

    0

Embed Size (px)

Transcript of Yum Cha 飲 茶 - · PDF file Yum Cha 飲 茶 January 28, 2014 INDICES Closing DoD% Hang Seng...

  • 1

    Yum Cha 飲 茶 January 28, 2014

    INDICES Closing DoD%

    Hang Seng Index

    21,976.1

    (2.1)

    HSCEI

    9,792.6

    (2.2)

    Shanghai COMP

    2,033.3

    (1.0)

    Shenzhen COMP

    1,083.2

    (0.6)

    Gold

    1,269.9

    (0.0)

    BDIY

    1,246.0

    (2.0)

    Crude Oil, WTI(US$/BBL)

    97.1

    0.4

    Crude Oil, BRENT(US$/BBL)

    107.6

    (0.2)

    HIBOR, 3-M

    0.4

    1.1

    SHIBOR, 3-M

    5.6

    0.0

    RMB/USD

    6.05

    (0.0)

    STRATEGY – China Credit Trust avoided default at the last minute but it will take time to un-

    tangle the deep-rooted problems caused by shadow banking. We may see some easing in

    domestic interest rates after the Lunar New Year holidays but they are likely to stay at least

    100bps above the level in May 2013. We believe net-cash companies with decent earnings

    growth are in a better position to weather the storm. Based on some conservative criteria, we

    would like to highlight seven H-share companies for reference: (1) Dongfeng Motor

    (0489.HK); (2) China Machinery Engineering (1829.HK); (3) China Communication Ser-

    vices (0552.HK); (4) Sinopec Engineering (2386.HK); (5) Great Wall Motor (2333.HK); (6)

    Guangzhou Auto (2238.HK); and (7) Qingling Motors (1122.HK). We have a BUY rating

    on Great Wall Motor.

    TALKING POINTS

    CHART OF THE DAY— SOME RELIEF AS RMB3bn TRUST RESOLVED, BUT OVERHANG REMAINS

    Analyst: John Mulcahy, Managing Director

    The settlement of the RMB3bn trust product problem arising for Industrial and Commercial

    Bank of China, ICBC [1398.HK] appears to have been resolved, as discussed elsewhere in this

    note. But the solution of this particular problem has not removed the overhang from China’s

    banks, and the market is awaiting clarity on the real threats to China’s bank balance sheets

    before regaining confidence in the sector. The chart shows the performance of 16 A– and H-

    share banks (table on page 2) and the extent of the meltdown in the sector over the past year.

    Separately, we have considered the impact on the seven largest H-share banks of an increase

    in overall impairment provisions to 5% from the current ~2.5%, and also the impact if non-

    performing loans (NPLs) are increased to 5% and the provision coverage ratio (provisions as

    % of NPLs) is maintained at the current level. The less aggressive action would be to increase

    the provision level alone, and this would have the effect of cutting net profit for 2013 by 23%

    (Agricultural Bank of China) to more than 100% (Bank of Communications). In the second sce-

    nario, increase in NPLs to 5% and maintained provision coverage, all the banks will see a sub-

    stantial impact on their income statements and balance sheets, recording deep losses for the

    year, with a comparable impact on capital. We do not believe the most severe provisioning will

    be applied, as China has a tendency for forbearance; to extend maturities; and to move non-

    performing assets off bank balance sheets into “bad” banks, which created the major asset

    management companies (AMCs) a decade or so ago. But the scale of the credit issue con-

    fronting China —RMB10trn in trust products; RMB17.5trn in local government financing vehi-

    cles; and RMB10trn-12trn in wealth management products (WMPs) suggests that the banks

    will be forced to take a hit of some magnitude, and until the scale of that is clearer there is little

    prospect of a re-rating for the banks.

    DIARY NOTES FOR THIS WEEK

    Jan 27 Industrial Profits YoY [Previously:

    13.2%]

    Jan 28 HSBC/Markit Manufacturing PMI

    [Previously: 50.5]

    Jan 31 Manufacturing PMI [Previously: 51.0]

    Source: Bloomberg

  • 2

    Total Loans NPL Ratio Provision Coverage Ratio Amount of Provision Net Growth of Provision Impact on net profit 2013E net profit

    2012 2013E RMBbn % % RMBbn RMBbn RMBbn RMBbn

    Industrial and Commercial Bank of China 238.69 267.33 9,644.52 0.91 268.87 482.23 246.25 (192.08) 75.26

    China Construction Bank 193.60 216.83 8,377.21 0.98 267.88 418.86 198.94 (155.17) 61.66

    Bank of China 145.52 162.98 7,535.37 0.96 232.90 376.77 208.29 (162.47) 0.52

    Agricultural Bank of China 145.13 162.55 7,107.87 1.24 347.64 355.39 48.99 (38.21) 124.33

    Bank of Communications 58.48 65.49 3,217.77 1.01 217.49 160.89 90.21 (70.36) (4.87)

    China Merchants Bank 45.28 50.71 2,173.21 0.79 280.99 108.66 60.42 (47.13) 3.58

    China Minsheng Banking 38.31 42.90 1,533.92 0.78 292.90 76.70 41.65 (32.49) 10.42

    Total Loans NPL Ratio Provision Coverage Ratio NPLs (If npl ratio = 5%) Effect on net profit 2013E net profit based on assumption

    2012 2013E RMBbn % % RMBbn RMBbn RMBbn

    Industrial and Commercial Bank of China 238.69 267.33 9,644.52 0.91 268.87 482.23 (827.26) (559.92)

    China Construction Bank 193.60 216.83 8,377.21 0.98 267.88 418.86 (703.66) (486.82)

    Bank of China 145.52 162.98 7,535.37 0.96 232.90 376.77 (553.03) (390.05)

    Agricultural Bank of China 145.13 162.55 7,107.87 1.24 347.64 355.39 (724.69) (562.14)

    Bank of Communications 58.48 65.49 3,217.77 1.01 217.49 160.89 (217.80) (152.31)

    China Merchants Bank 45.28 50.71 2,173.21 0.79 280.99 108.66 (200.52) (149.81)

    China Minsheng Banking 38.31 42.90 1,533.92 0.78 292.90 76.70 (147.89) (104.98)

    Source: Company, CGIHK Research

    Assuming npl ratio = 5% and provision ratio maintainedAs at the end of 2013 Q3

    Net Profit

    Net Profit

    Assuming Provision Coverage Ratio = 5%As at the end of 2013 Q3

    Most A– and H-share

    banks now below 1x

    book value…

    ...range of price falls

    5% to 29%...

    ...not yet at re-entry

    point.

  • 3

    Strategy

    January 28, 2014

    Wong Chi Man—Senior Analyst

    (852) 3698-6317

    cmwong@chinastock.com.hk

    John Mulcahy—Head of Research

    (852) 3698-6889

    johnmul@chinastock.com.hk

    H-Shares: Cash is King China Credit Trust default avoided... A settlement of the RMB3bn trust product issued by Chi-

    na Credit Trust was achieved at the last minute yesterday and “unidentified buyers” will acquire

    the rights in the trust product from investors at a price equal to the value of the principal invest-

    ed, according to press reports. Meanwhile, SHIBOR is expected to come down after the Lunar

    New Year holidays. As such, we will not be surprised to see a relief rally in the near term.

    ...but the first default still looks inevitable within this year. According to the China Trustee

    Association, trust companies managed trust assets of about RMB10trn at end-Sep 2013.

    29.49% of the total was invested in commercial and industrial sectors while 25.97% was invest-

    ed in the public sector. As the central government is keen to eliminate overcapacity in certain

    industrial sectors, some of these investments are likely to encounter cash flow problems (e.g. the

    RMB3bn trust product issued by China Credit Trust