中信银行:Revenue solid;Earnings dip in line with industry downtrend

CITICB reported decent revenue/PPoP growth of 10.3%/15.2% YoY in 2Q20.However, solid topline was slashed by heavy provision charges, leading to YoYearnings contraction of 26.5%/9.8% in 2Q/1H20. We see little surprise from thenegative profit growth, given CBIRC’s earlier announcement of 9.4%/24%banking sector earnings decline for the same period. Policy guidance on profitconcession and overhang from the pandemic should continue to weigh on Chinabanks’ bottom line growth in 2H20. Having said that,

we see limited share pricedownside at current depressed valuation. Thorough NPL exposure and front-loading of provisions bode well for long-term rerating.n Results positives: 1) Heathy deposit growth of 3.9% QoQ outpaced loangrowth of 1.4% QoQ. LDR fell 2.3ppt to 94%. 2) 2Q20NIM widened 4bp QoQto 2.01%, mainly on rising yield of retail loans. Yet, 1H20NIM still narrowed12bp YoY amid decline in overall asset yields and rigid deposit cost.Management expected further margin contraction in 2H20, but likely in smallermagnitude. 3) Trading income rose 20% YoY, mainly on higher return ofbond investments amid falling market rates. 4) 2Q20cost-income ratiodropped 3.2ppt YoY to 23.1%, suggesting better operating efficiency.Results negatives: 1) NPL ratio picked up 3bp QoQ/18bp HoH to 1.83%,higher than joint-stock banks’ average of 1.63%. This was mainly due toworsening asset quality of retail loans, esp.

credit cards, of which NPL ratiosurged 76bp HoH to 2.50%. However, management saw credit card NPLsabating from the peak in Mar 2020. 2) Provision charges soared 66.5% YoYin 2Q20, yet provision coverage slid 1.6ppt QoQ to 176%, below peer averageof 204%. 3) Capital position weakened on softer earnings and cash dividendpayout in 2Q20. CET1/total CAR fell 12bp/10bp QoQ to 8.80%/12.57%.Maintain BUY with lower TP of RMB6.80. We cut FY20/21earningsforecasts by 14.1%/15.5%, to reflect lower NIM/fee income and higher creditcost assumptions. Our revised TP of RMB6.80is based on 0.71x (from 0.75x)target P/B and FY20BVPS of RMB9.62.