Bank of Communications:Beta play beats on pallid provisions

Event

BoCom’s 4Q15 PATMI (-1.5% QoQ / +1.1% YOY) beat our forecast by 5%despite a 9% PPOP miss. With credit costs as the key driver of flat growth inearnings, we doubt this result will capture many hearts and minds.

Impact

Weak top line, but low provisions. NIM tightened (-4bp QoQ) to 2.02% onaverage total assets while weak non-fee gains drove a 14% QoQ decline intotal revenues and a 5% QoQ fall in PPOP. But provisioning saved the day,with annualized credit costs coming in at 80bps vs our expectation of 117bps.

It’s too early to say that asset quality has bottomed, in our view. The NPLratio reached 1.51% at 4Q15 (+9bps QoQ / 26bps YoY / +4bps higher thanour forecast) while the coverage ratio was 156% (-9bps QoQ / -23bps YOY).

The special mention loan ratio reached 3.17% (+8bps QoQ / +49bp YoY)while the gap between reported NPLs and loans overdue for 90-plus days(now 2.45% of total loans) widened by 54bps HoH and 115bps YoY.

Capital, divs in line. CET1 was 11.1%. DPS of 0.27 RMB was in line with ourforecast. The 30.1% payout ratio was a slight decline from 2014’s 30.4%.