ICBC (Hong Kong stock code 1398) announces mostly in-line 1H12 results, with net profit rising 13% on-year to CNY123.16 billion, slightly higher than the average CNY122.67 billion forecast of five analysts polled earlier by Dow Jones Newswires. Net interest income, which accounted for more than 70% of ICBC’s operating income, rose 17% to CNY204.06 billion, with NIM improving to 2.66% from 2.60% at end-FY11, and is one of few banks to report both on-half and on-quarter increases in NIM. ICBC fell 1.9% to HK$4.19 Thursday, and is trading at 5.3X prospective earnings with a forecast dividend yield of 6.7% based on Thomson Reuters, hinting a lot of concerns over slower earnings growth stemming form a slowing mainland economy are likely to be in the price. The stock is up 1.2% to HK$4.24.
Barclays says the bottom-line of CNY123.16 billion (+13% on-year) is 2.7% higher than its forecast of CNY120 billion, mainly due to better-than-expected net interest income and lower-than-expected operating cost and credit cost. It adds, the key positives from 1H12 results were sequential NIM expansion in 2Q12 (up 8 bps on-quarter) due to better funding cost control and improving Tier-1 ratio and total CAR to 10.38% (up 23 bps on-quarter) and 13.56% (up 43 bps on-quarter). Barclays keeps ICBC at Overweight with a HK$6.75 target.
UBS lowered its target price for ICBC to HK$5.3 from HK$5.4, and maintained its “buy” rating. Deposit growth of 7.5% HoH was a solid performance. However the research house estimated average deposit balances in 1H grew just 3.9% HoH, so some of the headline strength may be period end distortions. ICBC core tier 1 ratio finished 2Q at 10.38% (vs 10.15% at end-1Q). UBS anticipated the transition to Basel III will not trigger an equity capital raising. The house cut its earnings forecast by 1-3% for 2012-14 to reflect slower fee income growth.
Daiwa Research lowered its target price for ICBC to HK$5.5 from HK$6.6, and maintained its “buy” rating. It said ICBC posted one of the sector’s strongest NIM trends, up 4bps HoH and QoQ. The house believes this reflects ICBC’s relative deposit strength. But Daiwa reduced its 2012-13 EPS by 10-14% to reflect lower NIM and fee assumptions. It added that Goldman Sachs still owns a 1.2% stake in the company, and the potential disposal poses a risk to its call.
Goldman Sachs keeps its Buy rating and target at HK$5.90 for ICBC.
China Life (ADR: LFC, Hong Kong Stock Code 2628) is up 1.2% at HK$21.00, outperforming for a second straight session after its above-view 1H12 results. If it manages to cleanly breach its 50-day moving average at HK$20.93, more medium-term upside is likely.
Barclays upgrades China Life to Equal Weight from Underweight, and raises target price to HK$26.70 from HK$24.00; it says the better-than-expected margin expansion reflects significant improvements in underlying product mix, especially in the agency channel. “We see this as an early sign of the positive benefits of the agency restructure, improving the NBV growth outlook for the company.” China Life is third most heavily traded Hong Kong stock.
BOCI raised its target price for China Life Insurance to HK$22.1 from HK$20.5, and maintained its “hold” rating. It said China Life registered an attributable net profit decline of 25.7% YoY to RMB9.64bn in 1H, worse than the house’s expectation. BOCi believes its life business has shown signs of stabilisation compared with 2H 2011 with narrowing decline in new policy business growth, which was better than peers. Coupled with the base effect, BOCI believes this trend will continue in the next few months. It thus expects China Life’s full-year premium growth to turn positive and reach 4.5%.
UBS raised its target price for China Life Insurance to HK$23.68 from HK$22.22, and upgraded the stock to “buy” from “neutral”. It said NBV growth of 2.5% is a positive surprise, which will mark the beginning of the end of the slow growth period. UBS lifted its 2012-14 NPAT by 1-4% reflecting lower outstanding AFS losses at June-2012, better non-life income and lower par-dividend payouts.
Citigroup lifted its target price for China Life Insurance to HK$22.8 from HK$22.5, and maintained its “neutral” rating. The research house said China Life’s 1H earnings fell short of expectation, but NBV was in line and EV beat estimates substantially. However, NBV growth was bolstered by lower cost of solvency while EV was inflated by bond gains. Citi believes that EV growth driven by MTM gains is likely unsustainable.
China Merchants (Hong Kong stock code 00144) said its profit attributable to equity holders dropped 55.2% year-on-year to HK$1.76 billion for the six months ended 30 June 2012. Its basic and diluted earnings per share were HK70.97 cents and HK70.87 cents. The revenue was HK$4.79 billion, an increase of 14.2% from a year earlier. Revenue derived from the Group’s core segment of ports operation amounted to HK$3.27 billion, an increase of 5.7% year-on-year. The decline in interim net profit was mainly due to a drop in the share of profits of associates and jointly controlled entities by 31.4% and the one-off gain of HK$1.37 billion for the deemed disposal of interest in an associate in the same period last year is not occurring this year. Furthermore, finance costs which went up by 47.1% year on year mainly due to the medium- and long-term bonds issued by the Group during the period also reduced the Group’s profitability. Throughput of containers handled reached 29.18 million TEUs, up 5.6% year-on-year. Throughput of bulk cargoes handled rose 1.1% to 162 million tons. If exceptional gains were excluded, profit attributable to equity holders fell 32.3% to HK$1.61 billion. The proposed interim dividend is HK22 cents (2011: HK30 cents) per share, payable on or around 28 November. The stock is down 3% to HK$23.15.
China COSCO (Hong Kong stock code 01919) said its loss attributable to equity holders widened to Rmb4.87 billion for the six months ended 30 June 2012, as compared to the loss of Rmb2.76 billion in the same period last year. Its basic and diluted loss per share was Rmb0.4768. The revenue was Rmb42.56 billion, an increase of 1.3% from a year earlier. In the first half of 2012, the shipping volumes of container shipping and related businesses amounted to 3.78 million TEUs, an increase of 16.7% compared to the same period in 2011. Revenue for the period amounted to Rmb23.11 billion, up 14.1% year-on-year. The shipping volume of dry bulk shipping business was about 112 million tons, down 17.7% from a year ago. Revenue dropped 32.4% to Rmb8.26 billion. No interim dividend will be distributed. The stock tumbles 5% to HK$2.99.
Brilliance China Auto’s (Hong Kong stock code 1114) 1H12 results shine among Hong Kong-listed China auto makers, with net profit jumping 42% on-year to CNY1.33 billion, driven by strong sales of BMW sedans and stringent cost controls. The 1H bottom-line accounts for 58% of full-year earnings tipped by Thomson Reuters, as BCA’s 50:50 JV with BMW sold 80,792 BMW sedans in 1H, up 47% from 55,012 a year earlier. SHK Financial says Brilliance China benefits from Chinese appetite for luxury ebbs; it notes the stock has fallen 16% year-to-date and trades at 10X FY13 P/E, which “may not be justified for its strong earnings amid economic headwinds.” The stock jumps 5.4% to HK$7.41.
UOB KayHian says the earnings surprise came mainly from better-than-expected margins for BCA’s 50:50 JV with BMW (BMW Brilliance); UOB ups BCA to Buy from Hold with a higher target price of HK$9.00 Vs HK$7.00 on higher earnings forecasts (FY12/13/14 net profit forecasts raised by 24%/20%/17%, on higher margin assumptions for BMW Brilliance).
China Mengniu Dairy (Hong Kong Stock Code 02319) said its profit attributable to owners fell 18.4% year-on-year to Rmb645 million for the six months ended 30 June 2012. Its basic and diluted earnings per share were Rmb0.365. The revenue was Rmb18.36 billion, a decrease of 1.2% from a year earlier. Overall gross profit margin reached 25.7%, a decrease of 0.3 percentage points from the same period last year. The gross profit dropped 2.37% to Rmb4.71 billion. No interim dividend will be distributed.
JP Morgan lifted its target price for China Mengniu Dairy to HK$28 from HK$25, and maintained its “overweight” rating. It said Mengniu’s interim results demonstrated again that it can continue with product mix upgrades, even in difficult times. The research house estimated that without the product mix upgrades, GPM would have come down by another 4ppts. JPM believes Mengniu’s product mix improvement can continue for several years, leading to structural margin expansion.
Citigroup ted its target price for China Mengniu Dairy to HK$27 from HK$26, and maintained its “buy” rating. The research house cut its FY2012-13 earnings by 16% to factor in negative media reports and more spending on quality control. Citi awaits Mengniu’s new 5-year plan for more details on strategy execution.
Jefferies Research lowered its target price for Mengniu Dairy to HK$26.3 from HK$26.7, and maintained its “buy” rating. The research house said 1H results missed estimates, but the worst is likely behind. With COFCO’s active role, Mengniu is making a thorough transformation. The house continues to favour its leadership, quality improvement and value chain integration, albeit with a downward earnings revision, which is short term.