The Zhitong Finance App learned that Citibank (03968) released a research report saying that China Merchants Bank (03968)'s performance in the third quarter was lackluster, and the profit growth gap with large banks widened, maintaining the “buy” rating of H shares, with a target price of HK$59.63.
China Merchants Bank announced that operating profit for the first nine months of this year rose 5.6% year on year to 173 billion yuan, and profit rose 2.4% year on year to 11.5 billion yuan, equivalent to 75% of the annual market forecast. Operating profit for the third quarter rose 8.6% year on year to RMB 56.4 billion, benefiting from poor transaction revenue performance and a lower base; profit in the third quarter was slow, rising 3.1% year over year to RMB 40 billion due to high credit costs. The return on assets and return on equity for the third quarter decreased by 7 basis points and 68 basis points year-on-year, respectively, to 1.16% and 13.76%.
In terms of positive factors, net interest spreads for the third quarter remained flat at 1.82% from quarter to quarter; transaction revenue rose 31.4% year on year, accounting for 9.2% of revenue; cost to revenue ratio fell 1.1 percentage points year on year to 32.7%. In terms of asset quality, the non-performing loan ratio remained flat at 0.94% on a quarterly basis. The credit cost for the third quarter was 0.68% (up 19 basis points year-on-year), and the non-performing loan coverage rate was 389.4%. In terms of negative factors, loan growth slowed. In the third quarter, it remained flat, up 3.9% year on year; retail loans fell 0.2% from quarter to quarter, down 0.6% year on year; and fee revenue growth slowed to 0.9% year on year.
The bank pointed out that the increase in operating profit before provision for the third quarter was superior to the bank's expectations, supported by better-than-expected transaction earnings, and profit growth was generally in line with expectations. However, compared to the average operating profit and profit increase of about 14% and 5.9% year-on-year for the first nine months of the first nine months, China Merchants Bank's growth (5.6% and 2.4%, respectively) was significantly slower, which may have prompted investors to re-evaluate its valuation premium. The bank believes that Agricultural Bank (01288) and China Construction Bank (00939) may have better risk return than China Merchants Bank H shares; relatively speaking, the bank favors China Merchants Bank A shares over H shares.