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Agricultural Bank of China


Asset restructuring takes time
Agricultural Bank of China (ABC)s robust earnings momentum especially in County Area with ample room for improvement in cost efficiencies and asset qualities are its key attractions, in our view. We believe the bank to deliver better near-term growth prospect (net profit to grow 29.4% FY09-FY12 CAGR) and to follow the path of asset restructuring of other state-owned banks. We believe extensive footprint, low-cost funding and strong customer base are its key comparative advantages, and the valuation discount to peers is likely to converge in the long term, but the downside risks remain on its lower asset qualities and profitability compared with peers. Initiate HOLD with target price HK$3.86 based on 1.85x fair PBR.
Key attractions. (1) 23,560 branches and 3.2mn retail customers; (2) high loan and deposit growth in County Area; (3) higher credit pricing power in County Area; (4) high proportion of low-yield demand deposits; (5) high proportion of high-yield corporate loans; (6) low loan to deposit ratio of 55.4%; (7) riding on governments incentives to capture opportunities in rural finance. Upbeat 1H10 results. ABC reported its 1H10 net profit of RMB45.8bn, up 40% yoy, which is better than expected. High growth County Areas PBT grew 82% yoy. NIM rebounded strongly by 21bps yoy to 2.47% while fee income rose 60% yoy on a recurring basis, which are both the highest among largesized banks. Cost to income ratio and credit costs stood at 43% and 85bps (annualized) respectively in 1H10, which are higher than peers, yet to improve from a lower base in future. Valuation and recommendation. We project net profit to grow at a FY09FY12 29.4% CAGR under faster-than-peers 20% 3-year CAGR loan book expansion, 19-31bps NIM expansion each year in FY09-FY12 and 32% 3-year CAGR fee income growth. The high growth momentum however is masked by its short track record after restructuring and share supply overhang risk. Assign target price of HK$3.86, equivalent to 2x FY10F PBR. Initiate HOLD. Key risks include (1) Risk of deterioration of credit quality; (2) County Area banking business risks; (3) Risk of higher CAR and provisioning regulatory requirements; (4) Credit tightening policy in China.
Valuation Statistics
YE 31 Dec 2008A 2009A 2010F 2011F 2012F Total op. inc. Rmb mn 214,016 223,637 294,345 369,411 450,127 Net profit Rmb mn 51,474 64,992 86,491 112,420 140,798 EPS EPS Rmb chg % 0.20 17.6 0.25 26.3 0.27 6.5 0.35 30.0 0.43 25.2 PER x 15.6 12.4 10.6 8.8 7.1 BVPS Rmb 1.1 1.3 1.7 1.9 2.1 PBR X 2.8 2.3 1.9 1.7 1.5 DPS Rmb na 0.08 0.13 0.15 0.19 Yield % na 2.5 4.1 4.9 6.1 ROE % (23.5) 20.5 19.6 19.6 21.8

Company Report
Rating

HOLD

2 September 2010 Ivan Lin (852) 2683 3212 ikclin@icbci.com.hk Mimi Kong (852) 2683 3229 mljkong@icbci.com.hk
Sector Key Data Ticker Price (1 Sep) Target price
52W High 52W Low Mkt. Cap. (HK$mn) Mkt. Cap. (US$mn) Total Issued Share (mn) Avg. 3mths t/o (HK$mn)
Source: Bloomberg, ICBCI Estimates

Banking

1288.HK HK$3.53 HK$3.86


HK$3.60 HK$3.20 1,009,053 129,740 324,794 na

Shareholdings Structure
Huijin MOF QIA SSF Free Float
Source: HKEx, Company

40.0% 39.2% 4.6% 3.9% 12.3%

Price performance
HK$ 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 07/10 08/10 Volume (RHS) Agricultural Bank(LHS) mn 4000 3500 3000 2500 2000 1500 1000 500 0

Source: Company, ICBCI estimates

Source: Bloomberg

ICBC International Securities Limited acted as Co-Lead Manager of Agricultural Bank of China when it was listed on the Main Board of the Stock Exchange of Hong Kong Ltd in Jul 2010.
For further product information please contact ICBC International Research Limited at (852) 2683 3888

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Investment highlights
Key attraction: robust earnings momentum We believe ABCs robust earnings momentum is its key attraction. Leveraging on its competitive niche in County Area and retail banking businesses, the bank is likely to deliver better near-term growth prospect as guided by the management in FY10-FY12, thanks to large room for improvement in cost efficiency and asset quality. We think ABC will follow the path of asset restructuring similar to other state-owned banks, but the process takes time. The valuation discount to peers is likely to converge in the long term, but the downside lies on share supply overhang risk in the near term and the potential deterioration of asset quality under more severe regulatory requirement.
FY09A-FY12F Net profit growth rate (%)
% 60 50 40 30 20 10 0 (10) (20) ABC CCB FY09A BOC* BoCom FY10F CMB FY11F Citic Minsheng* FY12F

FY09A-FY12F ROAE (%)


% 24 22 20 18 16 14 12 10 ABC CCB FY09A BOC* BoCom FY10F CMB FY11F Citic Minsheng* FY12F

Source: ICBCI estimates *Bloomberg

Source: ICBCI estimates *Bloomberg

Extensive footprint leads to fast balance sheet growth Taking advantages of its over 23,560 branches (as of 1H10) that spread across most provinces in China, we expect the banks net profit to grow 29.4% FY09-FY12 CAGR under faster-than-peers 19-31bps NIM expansion each year in FY09-FY12. While usually low-yield retail demand deposits make up a high proportion of deposits in County Area, ABCs strong low-cost funding base, higher credit pricing power in less-developed regions and low loan-to-deposit ratio (55.4% in 1H10) are the key factors to sustain its margin, in our view. In light of the rapid expansion demand in rural areas, ABC can re-leverage its balance sheet more on its interest-earning asset side (approximately 20% 3-year CAGR vs 16% in peers) to capture higher interest income given its strong distribution network, and ABCs comparative advantage of extensive footprint is hard to compete, we believe.
1H10 Peer comparison on loan and deposit proportion & yield
1H10 (%) ABC CCB BOC* BoCom^ CMB Citic Minsheng Corporate Corporate Retail Discounted Corporate Retail Retail Loan Loan Bills Demand Deposit Time Deposit Demand Deposit Time Deposit % of % of % of % of % of % of % of total loan yield total loan yield total loan yield total deposit yield total deposit yield total deposit yield total deposit yield 73.9 5.32 20.8 5.10 4.5 3.16 29.4 0.57 11.9 2.35 27.0 0.36 31.7 2.33 69.8 5.31 23.1 4.82 4.2 2.99 35.5 0.62 17.6 2.15 18.1 0.37 27.6 2.20 67.1 5.33 28.5 4.72 4.4 2.69 29.3 0.70 18.4 2.16 13.6 0.37 30.8 2.29 77.2 5.13 16.1 5.40 6.6 2.94 66.1^ 1.30^ 33.9^ 1.37^ 54.1 4.85 29.6 4.91 16.3 3.08 32.9 0.62 28.6 1.89 21.4 0.52 17.0 2.17 75.2 5.19 13.6 4.96 5.2 3.00 41.4 0.63 38.3 2.07 3.4 0.36 10.8 1.94 # # 80.3 5.51 19.7 5.42 na na 42.7 0.71 40.7 2.16 4.3 0.36 12.2 1.87

Source: Company data * BOC data for Domestic RMB line only ^ BoCom only average Corporate Deposit and Retail Deposit proportion and yield shown # Minsheng Corporate loan proportion and yield including discounted bills

Agricultural Bank of China - 2 September 2010

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Asset quality remains the largest drag yet to improve in future Net interest income contributed over 82% of the total operating income in 1H10, however its high profitability is masked by low cost efficiency and high provision charge. Improving from a relatively low base, we expect ABC will have a better credit outlook and achieve efficiency gains in future. Having carved out more than RMB767bn NPL during the financial restructuring in FY08, ABC significantly reduced its NPL balance and ratio in FY09 and 1H10. We believe ABC will follow the restructuring path of state-owned banks in future, however the relatively lower asset quality remains the major downside risks for ABC.
1H10 Peer comparison on cost efficiency and asset quality
1H10 ABC Urban ABC County ABC overall CCB BOC BoCom CMB Citic Minsheng Cost-to-income ratio (%) 37.8 50.1 43.0 33.6 40.0 36.0 40.8 37.1 46.8 Number of branches* 10,887 12,737 23,624 13,384 9,988 2,648 685 616 516 PPOP per branch (Rmb mn) 4.91 1.90 3.30 7.62 7.99 11.87 28.32 26.11 26.90 NPL ratio (%) 2.13 2.75 2.32 1.22 1.20 1.22 0.67 0.81 0.79 Provision coverage Ratio (%) 136.0 136.5 136.1 204.7 188.4 161.2 297.6 169.9 229.4 Credit cost (%) 0.62 1.38 0.85 0.38 0.42 0.51 0.37 0.29 0.46

Source: Company data * Number of branches as at 31 Dec 2009.

NPL balance change since restructuring


% 20 0 (20) (40) (60) (80) (100) R R+1 ABC (R=2008) R+2 R+3 R+4 R+5

NPL ratio since restructuring


% 25 20 15 10 5 0 R-1 R ABC (R=2008) R+1 R+2 CCB (R=2003) R+3 R+4 R+5

CCB (R=2003)

BOC (R=2004)

BOC (R=2004)

Source: Company data

Source: Company data

Property-related loans asset quality remains sound We think the asset quality of ABCs property-related loan remain sound. Total balance of property-related loans (including property developer and residential mortgage loans) in 1H10 was RMb1.17tn, which was the lowest among state-owned banks. NPL ratio of property-related loans in 1H10 was 1.29%, down 0.89ppt compared with FY09, which was 1.03ppt lower than bank average. Provision coverage of property-related loans was 153% in 1H10, which was 15.9ppt higher than bank average. Regarding the loan portfolio of property-related loans, 65% was extended to low-risk area, 70% was extended to developed region, 95% was extended to borrowers with AA+ credit rating and 81% was extended to first home buyers, altogether showing benign asset quality.

Agricultural Bank of China - 2 September 2010

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1H10 Property-related loan balance, proportion and NPL ratio
1H10 ABC Property development Mortgage loans Total loans Property development Mortgage loans Total loans Property development Mortgage loans Total loans Property development Mortgage loans Total loans Property development Mortgage loans Total loans Property development Mortgage loans Total loans Property development Mortgage loans Total loans loans Loan balance (Rmb mn) 536,381 641,667 4,623,983 378,611 1,002,221 5,349,382 425,051 1,016,620 5,391,879 156,720 242,971 2,070,568 111,620 303,262 1,330,765 60,498 146,750 1,192,838 121,917 106,100 954,846 Proportion to total loan (%) 11.60 13.88 100.00 7.08 18.74 100.00 7.88 18.85 100.00 7.57 11.73 100.00 8.39 22.79 100.00 5.07 12.30 100.00 12.77 11.11 100.00 NPL ratio (%) 1.90 0.79 2.32 1.97 0.58 1.22 0.79* 0.48* 1.20 na na 1.22 0.75 0.12 0.67 2.03 0.13 0.81 na na 0.79

CCB

loans

BOC

loans

BoCom

loans

CMB

loans

Citic

loans

Minsheng

loans

Source: Company data * impaired loan ratio

In Apr 2010, the government published a series of property tightening rules, namely the Notice of Curbing Excessive Growth of Home Prices in Some Cities () () to clamp down on excessive property price rise in some cities. We believe that the government remains committed to clamp down speculation and has been trying different means to facilitate a much wanted price correction. Meanwhile, we believe property developers are likely to cut price more aggressively to boost contracted sales volume, leading to a meaningful correction in property price.
Jan08-Jul10 NDRC Property price (%)
% 14 12 10 8 6 4 2 0 (2) (4) Jul 08 Jul 09 May 08 May 09 Mar 08 May 10 Mar 09 Nov 08 Nov 09 Mar 10 Jan 08 Jan 09 Sep 08 Sep 09 Jan 10 Jul 10

Source: Bloomberg

It is reported that some stress tests were conducted to gauge the impact of property-related loans if property price fell 30% or 50-60% in cities where they have risen excessively. However, we think both cases are highly unlikely to happen and the government is likely to step in to keep economic growth, in our view. We believe the

Agricultural Bank of China - 2 September 2010

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tests intend to measure the potential risk to the banking sector and give an overall picture to the government for such scenario, and the downside risk of weaker property market remains manageable to ABC, in our view. Biggest player for County Area banking business County Area banking business is of relatively lower profitability but higher growth potential. Thus, there is ample room for improvement in ROA and PPOP ROA under the governments initiative in developing rural finance. The development of Sannong (agriculture, peasants and rural areas) is indispensable to the rural finance. In 2008, ABC held a market share of 12%, 14% and 22% of the total number of outlets, total loans and total deposits in the County Area banking market respectively. ABC is best positioned to benefit from Chinas rapid urbanization and industrialization, industry migration and supportive government policies and subsidies.
1H10 Peer comparison on loan, deposit and earning growth
(%) ABC Urban Area ABC County Area ABC overall CCB BOC BoCom CMB Citic Minsheng
Source: Company data

Loan growth (1H10 vs FY09) 9.24 17.90 11.74 10.99 9.81 12.57 12.22 11.94 8.14

Deposit growth (1H10 vs FY09) 11.81 10.68 11.74 10.99 9.04 13.95 8.97 21.42 16.99

Net profit growth (1H10 yoy) 25.15* 81.94* 40.12 26.76 26.87 30.08 59.80 45.35 20.23

Net fee income growth (1H10 yoy) 26.67 41.22 31.98 43.63 23.31 30.11 32.26 30.36 96.21

* ABC Urban Area & County Area - Profit before Tax growth

FY09-FY12 ROAA (%)


% 1.6 1.5 1.4 1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.6 Faster-thanpeers growth

FY09-FY12 PPOP ROAA (%)


% 2.4 2.2 2.0 1.8 1.6 1.4 1.2 Faster-thanpeers growth

ABC

CCB FY09A

BOC*

BoCom

CMB FY11F

Citic FY12F

Minsheng*

ABC

CCB FY09A

BOC*

BoCom FY10F

CMB FY11F

Citic FY12F

Minsheng*

FY10F

Source: ICBCI estimates *Bloomberg

Source: ICBCI estimates *Bloomberg

Successful examples of agricultural banking business Credit Agricole, Rabobank and Bank Rakyat Indonesia (BRI) are among those with successful experiences in developing rural finance in other countries. For Credit Agricole, the bank has EUR1.7tn assets, EUR800bn loans in FY09 and 85% market share in agricultural finance business in France. The success relies on its various layers of responsibilities borne by the government, regional and local banks. For Rabobank, the bank strongly participates in the supply chain process of agricultural companies to provide comprehensive services that can diversify risks and enhance returns. For BRI, while SME agricultural loan accounts for 30% of the total loan but

Agricultural Bank of China - 2 September 2010

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40% of the net profit, market-driven interest rate helps modeling the risk-adjusted returns. These successful experiences present a strong growth opportunity in the agricultural banking business for ABC in China. Harvest period for County Area banking business With the fast growth of County Area banking business, percentage of profit before tax of County Area increased from 12.1% in FY07 to 25% in 1H10. In 1H10, average loan yield of County Area was 5.47%, 0.31ppt higher than that of the bank average, showing higher credit pricing power in County Area. As loans, deposits and assets in County Area took up 30.4%, 40.2% and 35.7% respectively of the total in 1H10, we believe County Area will account for a higher percentage of profit before tax amid improvement in cost efficiencies and asset qualities.
1H10 Peer comparison on financial indicators
ABC Urban Profitability Non interest income to operating income (%) -Net fee income to operating income (%) Cost-to-income ratio (%) ROAA (%) Asset quality NPL ratio (%) Provision coverage ratio (%) Allowances to total loans (%) Credit Cost (%) Liquidity Loan-to-deposit ratio (%) Loan to assets (%) Growth Rates Net Interest Income Growth (%) Net Fee and Commission Income Growth (%) Total operating income Growth (%) Operating Expense Growth (%) Pre-Provision Profit Growth (%) Provision expense growth (%) Profit Before Tax Growth (%) Loan Growth (gross) (%) Deposit Growth (%) Asset Growth (%)
Source: Company data * ICBCI estimates

ABC County 18.75 18.53 50.12 0.55 2.75 136.5 3.75 1.38 41.89 40.70 53.71 41.22 51.57 38.89 68.03 50.75 81.94 17.90 10.68 6.86

ABC 17.93 16.50 42.95 0.99 2.32 136.1 3.15 0.85 55.38 47.69 33.15 31.98 30.34 32.44 28.79 4.96 35.75 11.74 11.35 9.16

CCB 23.37 21.88 33.64 1.43 1.22 204.7 2.49 0.38 62.26 52.26 14.96 43.63 16.93 11.98 19.62 (1.51) 27.22 11.14 10.99 6.37

BOC BoCom 3.28 4.12 1.33 1.18 1.20 188.4 2.26 0.42 74.69 20.30 22.94 23.31 23.22 26.52 21.11 62.81 25.39 9.81 9.04 10.72 19.46 14.38 36.02 1.16 1.22 161.2 1.97 0.51 70.45 55.82 33.95 30.11 33.54 41.79 28.19 16.69 30.77 12.57 13.95 12.09

CMB 20.13 16.21 40.79 1.21 0.67 297.6 1.98 0.37 75.94 58.30 41.45 32.26 33.04 13.25 52.11 (7.51) 67.32 12.22 8.97 10.37

Citic Minsheng 12.53 9.89 37.09 1.17 0.81 169.9 1.38 0.29 73.21 61.48 42.20 30.36 39.69 34.00 43.27 21.88 44.84 11.94 21.42 9.23 18.85 17.29 46.79 1.17 0.79 229.4 1.80 0.46 72.36 58.55 51.72 96.21 22.85 38.30 11.59 (11.98) 21.17 8.14 16.99 14.33

17.46 15.93 37.81 1.15* 2.13 136.0 2.89 0.62 64.47 51.07 23.65 26.67 20.48 27.70 16.48 (10.63) 25.15 9.24 11.81 10.26

Gap between ABCs Urban Area business and peers are expected to narrow Despite ABCs Urban Area banking business broadly lags behind peers, after financial restructuring and under government reform incentives, we believe there are several areas that can boost its growth and narrow the gap between ABC and other state owned banks: (1) Higher loan growth and deposit growth; (2) Non-interest income to improve from a low base; and (3) Asset quality and cost efficiency to improve from a low base.

Agricultural Bank of China - 2 September 2010

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1H10 DuPont analysis
Net Interest Income / Average Assets (%) Non Interest Income / Average Assets (%) Non Interest Income / Total Operating Income (%) Total Operating Income / Average Assets (%) Cost to Income Ratio (%) Cost to Average asset Ratio (%) PPoP / Average Assets (%) Provision losses / Loans (%) Loans / Assets (%) Profit before tax / Average Assets (%) Tax (%) ROAA (%) Average Equity / Average Assets (%) ROAE (%)
Source: Company data

ABC 2.41 0.53 17.93 2.93 42.95 1.26 1.67 (0.88) 46.19 1.25 20.96 0.99 3.94 25.10

CCB 2.37 0.72 23.37 3.10 33.64 1.04 1.03 (0.39) 50.96 1.86 23.23 1.43 5.96 24.00

BOC 1.99 0.89 30.87 2.88 39.96 1.15 1.73 (0.43) 54.41 1.53 22.64 1.18 5.96 19.79

BoCom 2.27 0.55 19.46 2.82 36.02 1.02 1.79 (0.52) 54.72 1.49 21.88 1.16 5.13 22.61

CMB 2.42 0.61 20.13 3.03 40.79 1.24 1.78 (0.38) 57.15 1.57 22.47 1.21 4.99 24.27

Citic 2.41 0.34 12.53 2.75 37.09 1.02 1.73 (0.28) 60.63 1.54 24.10 1.17 5.82 20.09

Minsheng 2.77 0.64 18.85 3.41 44.43 1.52 1.82 (0.45) 57.49 1.52 23.17 1.17 6.07 19.28

SWOT analysis Strengths Weaknesses 1. High earnings momentum 1. Lower cost efficiency 2. Strong distribution network and footprint in County 2. Lower asset quality Area 3. Short track record of listing and restructuring 3. Large retail customer base Opportunities 1. Large room for improvement in cost efficiency and asset quality 2. Government's incentive to develop agricultural and rural finance 3. Low loan-to-deposit ratio and higher credit pricing power in retail business to boost its NIM Threats 1. Share supply overhang risk 2. Deterioration of asset quality amid more stringent regulatory requirement 3. Competition from rural cooperatives in the rural market

Source: ICBCI estimates

Sector outlook
Our economist forecasts that China is likely to achieve soft landing under the governments determination in maintaining GDP growth of 9% this year. While we believe the worst of the financial crisis is behind us, the Chinese government is likely to keep a moderately loose monetary policy for the stable recovery of the Chinese economy. Therefore, the Chinese government work report published early this year reiterated the target of 17% broad money supply (M2) and RMB7.5tn loan growth in 2010. In 1H10, the government through central bank bills issuance and reserve requirement ratio (RRR) hike by three times drained liquidity amid worries over the lending spree last year and abundant market liquidity. Going forward, with growing inflation pressure, we forecast a parallel interest rate hike (27bps increase in both benchmark loan and deposit rate) is likely to happen in 4Q10, which is positive for NIM expansion. Without factoring in the effects of parallel interest rate hike, we expect ABCs NIM to achieve 2.58% in FY10, thanks to the banks strong 1H10 NIM rebound and strong credit pricing power in County Area.

Agricultural Bank of China - 2 September 2010

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1Q05-2Q10 GDP growth rate (%)
% 14 13 12 11 10 9 8 7 6 5 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10

Jan07-Jul10 M2 growth rate (%)


% 32 30 28 26 24 22 20 18 16 14 Jul 07 Jul 08 Jul 09 May 07 May 08 May 09 May 10 Mar 07 Mar 08 Mar 09 Nov 07 Nov 08 Nov 09 Mar 10 Jan 07 Jan 08 Jan 09 Sep 07 Sep 08 Sep 09 Jan 10 Jul 10

Source: Bloomberg

Source: Bloomberg

Jan08-Jul10 New RMB loans


Rmb bn 1,900 1,700 1,500 1,300 1,100 900 700 500 300 100 Jul-08 Jul-09 May-08 May-09 May-10 Mar-08 Mar-09 Mar-10 Jun-08 Jun-09 Aug-08 Aug-09 Jan-08 Jan-09 Apr-08 Apr-09 Sep-08 Sep-09 Nov-08 Nov-09 Oct-08 Feb-08 Feb-09 Dec-08 Feb-10 Dec-09 Jun-10
Aug 10

Total Rmb5.2tn, representing 69% of the Rmb7.5tn loan target in FY10.

Jan-10

Source: Bloomberg

Meanwhile, while medium-to-long term bond yields and interbank yields have been hovering at low level in 1H10 under weak capital market performance, bond investments of the banking industry face reinvestment risks which added to the pressure of NIM expansion in 1H10. Nevertheless, we expect the bond yield is likely to catch up in 4Q10 amid the trend of higher inflation and possible interest rate hike. Coupled with better credit pricing power, optimized loan and deposit mix and re-pricing of time deposits, we expect ABCs NIM expansion target to remain intact at 19bps-31bps each year in FY10-FY12.
Jan09-Jul10 CPI Index
4 3 2 1 0 (1) (2) (3) Jul 09 Jul 10 May 09 May 10 Mar 09 Mar 10 Jun 09 Jun 10 Jan 09 Aug 09 Jan 10 Apr 09 Apr 10 Sep 09 Feb 09 Oct 09 Nov 09 Feb 10 Dec 09

Jan10-Aug10 10-year government bond yield (%)


% 3.75 3.65 3.55 3.45 3.35 3.25 3.15 May 10 Mar 10 Feb 10 Jun 10 Jan 10 Apr 10 Jul 10

Source: Bloomberg

Source: Bloomberg

Agricultural Bank of China - 2 September 2010

Apr-10

Oct-09

Jul-10

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Scenario analysis for interest rate hike
Scenario 1 2 3 4 5
Source: ICBCI estimates

Benchmark loan yield +27bps +27bps Unchanged Unchanged -27bps

Benchmark deposit yield Unchanged +27bps Unchanged +27bps -27bps

Expected NIM in FY10 2.64% 2.62% 2.58% 2.56% 2.54%

Effects to net profit +5.1% +3.4% -1.7% -3.4%

1H10 results review


1H10 P&L
(RMB mn) Net interest income Net fee income Other non interest income Operating income Operating expenses PPOP Provision losses Profit before tax Net profit to shareholders
Source: Company data

1H10 111,708 22,459 1,951 136,118 58,468 77,650 (19,623) 58,027 45,840

1H09 83,896 17,017 3,523 104,436 44,146 60,290 (17,545) 42,745 32,714

yoy(%) 33.2 32.0 (44.6) 30.3 32.4 28.8 11.8 35.8 40.1

2H09 97,743 18,623 2,835 119,201 65,421 53,780 (22,597) 31,183 32,278

hoh(%) 14.3 20.6 (31.2) 14.2 (10.6) 44.4 (13.2) 86.1 42.0

1H10 Key financial ratios


(%) NIM Fee-to-op. income Cost-to-income ratio ROA ROE Core CAR Total CAR Loan to deposit ratio NPL ratio Provision coverage
Source: Company data

1H10 2.47 16.50 42.95 0.99 25.10 6.72 8.31 55.38 2.32 136.11

1H09 2.21 16.29 42.27 0.84 21.60 na na na na na

yoy (+/-) 0.26 0.21 0.68 0.15 3.50 na na na na na

2009 2.28 15.94 48.99 0.82 20.53 7.73 10.07 55.19 2.91 105.37

1H10 vs 2009(+/-) 0.19 0.56 (6.04) 0.17 4.57 (1.01) (1.76) 0.19 (0.59) 30.74

1H10 Balance sheet


(RMB mn) Gross loans and advances Total assets Due to customers Total liabilities Total equity to shareholders
Source: Company data

1H10 4,623,983 9,694,944 8,348,531 9,342,199 352,745

2009 4,138,187 8,881,155 7,497,442 8,539,906 341,249

1H10 vs 2009 (%) 11.7 9.2 11.4 9.4 3.4

Agricultural Bank of China - 2 September 2010

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Equity Research
Better than expected results under highest NIM among peers ABCs 1H10 results are ahead of our expectation, posting 1H10 net profit of RMB45.8bn in 1H10, up 40.1% yoy, representing 55% of the guided full-year net profit of no less than RMB82.9bn. The growth was the highest among state-owned banks, thanks to 19% yoy increase in scale of interest-earning assets, 26bps yoy rebound in net interest margin (NIM) and 32% yoy rise in fee income. While interest-earning assets yield was largely flat in 1H10 (3.73%) compared with 1H09 (3.75%), significant 30bp yoy drop in interest-bearing liabilities yield (1.32% in 1H10) due to re-pricing of time-deposits contributed to the 26bp widening of NIM to 2.47% in 1H10, and the NIM was the best among state-owned banks. The banks comparative advantage of extensive retail franchise and low-cost demand deposit funding remain the key NIM driver. Optimized loan and deposit structure also added to NIM expansion, such as (1) higher proportion of demand deposits, increased from 55.5% in FY09 to 55.8% in 1H10; (2) higher proportion of medium to long term corporate loans, rose from 58.2% in FY09 to 59.8% in 1H10; and (3) higher proportion of retail loans (from 19.1% in FY09 to 22.1% in 1H10). Fee income grew strongly Fee income indeed rose 60% yoy on a recurring basis which surprised us on the upside, after the deduction of one-off agency commission from the MOF for the disposal of non-performing assets. Of which the fee income growth was led by 143% yoy growth in consultancy and advisory fees and 99.4% yoy growth in electronic banking fees. We expect fee income will continue to rise at a better-than-peers growth rate, however the fee-tooperating-income ratio of 16.5% still lagged behind peers 20-25% in 1H10. County Area to improve from a low base County business generally grew faster-than-bank-wide with financial indicators showing higher improvement. Loan book expanded 17.9% yoy, 6.2ppt higher than the growth of the bank; net profit rose 81.9% yoy, 41.7ppt higher than the growth of the bank. With NPL ratio of 2.75%, cost-to-income ratio of 50.1%, ROAA of 0.55% and loan-to-deposit ratio 41.9%, which all underperformed Urban Area Banking business, we think County Area Banking business is poised to improve from a low base leading to ABCs higher growth in future. Lower provision pressure ahead Outstanding NPL decreased most in real estate and manufacturing sectors, which are traditionally of lower asset quality, with NPL ratios of these two sectors decreased to 3.01% and 1.9% respectively in 1H10. ABC strengthened its effort to meet the 150% provision coverage requirement by 2010 through increasing collectively assessed impairment allowance by 27% during 1H10. With the ratio reaching 136% in 1H10, it is likely to see a lower pressure to take provision in 2H10 after meeting the requirement.

Agricultural Bank of China - 2 September 2010

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Equity Research
Earnings forecast
We expect ABCs net profit to grow at a FY09-FY12 29.4% CAGR under prosperous growth outlook. With expected 20% 3-year CAGR in loan portfolio and 19-31bp NIM expansion each year during FY09-FY12, net interest income is expected to accelerate at 3-year CAGR of 26%. Fee income is expected to grow by 32% CAGR during the period, thanks to the banks high growth in settlement, insurance agency, bank card and consultancy & advisory fees. Pre-provision ROAA and ROAA are expected to improve from 1.44% to 1.98% and from 0.82% to 1.12% respectively in FY09-FY12.
FY09-12 Earnings forecast
Net profit growth (%) Operating income growth (%) Net interest income growth (%) Net fee income growth (%) NIM growth (ppt) PPOP ROAA (%) ROAA (%) ROAE (%) Gross loan growth (%) Deposit growth (%) Loan-to-deposit ratio (%)
Source: Company data, ICBCI estimates

FY09A 26.26 4.50 (9.18) 49.76 (0.85) 1.44 0.82 20.53 33.48 22.96 55.19

FY10F 33.08 31.62 32.91 36.64 0.31 1.67 0.90 19.56 24.26 16.70 58.77

FY11F 29.98 25.50 24.32 33.04 0.23 1.84 1.02 19.60 19.20 16.20 60.29

FY12F 25.24 21.85 21.08 26.45 0.19 1.98 1.12 21.81 15.94 15.70 60.42

Valuation
Assign target price of HK$3.86 based on 1.85x fair PBR We value ABC by using Dividend Discount Model (DDM), deriving a fair PBR of 1.85x PBR, equivalent to 2x FY10F PBR and 1.8x FY11F PBR. We estimate the counter to trade at 1.69x forward PBR and assign a target price of HK$3.86, representing 19% discount to CCB and 16% premium to BOC based on the fair PBR multiple (CCB: 2.2x, BOC: 1.6x). We believe this is justified by ABCs high earning growth potential and strong domestic presence especially in the County Area region, as well as the lower asset quality of the bank when compared with peers. The valuation is derived by 15.8% sustainable ROE, sustainable gearing of 19x, a terminal growth rate of 6.5% and cost of equity of 11.5%. Valuation looks fair but downside remains We think the 1.85x fair PBR multiple of ABC is reasonable, which is lower than 2.2x for CCB and higher than 1.6x for BOC, based on our analysis. It is also justified by our estimation of 19.6% FY10F ROE, which is higher than BOCs 17.7% and lower than CCBs 21.8%. While ABC is likely to deliver better growth prospect, earnings upside and higher NIM level over peers, we believe the valuation gap will converge to sector average in future. Nevertheless, it takes time to observe the improvement in asset quality and whether ABCs relatively higher credit costs will come down after the financial restructuring.

Agricultural Bank of China - 2 September 2010

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Equity Research
Sector PBR graph
3.0 2.8 2.6 FY10E PBR (x) 2.4 2.2 2.0 1.8 1.6 1.4 1.2 15 16 17 18 19 20 21 22 23 FY10E ROE (%) Minsheng Citic BOC ABC BoCom CCB
FY10E PER (x)

Sector PER graph


16

CMB

15 14 13 12 11 10 9 8 16 20 24 28 32 36 40 FY10E earnings growth (%) Minsheng* BOC CCB BoCom Citic ABC CMB

Source: Bloomberg, ICBCI estimates

Source: Bloomberg, ICBCI estimates

Short track record after restructuring and share supply overhang risk ABCs share price outperformed peers by 10% and Hang Seng Index by 8% since listing on Jul 16, 2010, primarily attributable to strong investors buying interests and the inclusion of the counter in MSCI index, in our view. Nevertheless, as of the trading close on Sep 1, 2010, ABC H-share was trading at 15% premium over ABC A-share, which lay at the lower end among peers (peers stood at 21%-29% premium). We believe this is because of the limited track record after massive restructuring, and investors are likely reluctant to pay a premium for the counter. Meanwhile, lock-up period for cornerstone investors will come to an end in 6 months to 18 months time. While government-backed entities such as MOF, Huijin and SSF, are likely to maintain their stake (being aggregate 83% of the total), increase in free float amount of other cornerstone investors will act as share supply overhang risk for the counter we believe.
ABC H-share Cornerstone (6 months lockup) Cornerstone (12 months lockup) Cornerstone (18 months lockup) Others Total
Source: Company data, HKEX, ICBCI estimates

Number of shares held (mn) 1,373 7,629 6,256 13,965 29,223

% of total 4.7 26.0 21.3 48.0 100.0

Agricultural Bank of China - 2 September 2010

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Equity Research
Valuation Table
Company ABC-H CCB-H BOC-H BoCom-H CMB-H Citic-H Minsheng-H Fiscal Ticker year end 1288 12/2009 939 12/2009 3988 12/2009 3328 12/2009 3968 12/2009 998 12/2009 1988 12/2009 601939 601988 601288 601328 600036 601998 600016 600000 601166 600015 601169 601009 002142 2888 2388 11 23 2356 302 1111 636 12/2009 12/2009 12/2009 12/2009 12/2009 12/2009 12/2009 12/2009 12/2009 12/2009 12/2009 12/2009 12/2009 12/2009 12/2009 12/2009 12/2009 12/2009 12/2009 12/2009 12/2009 Mkt Cap 1 Sep PER (x) (USD mn) Px Last Cur Yr Nxt Yr 129,740 3.53 10.6 8.8 192,207 6.44 10.2 8.3 125,584 3.90 9.1 7.9 54,648 8.33 10.6 8.6 45,357 20.10 15.1 12.2 30,350 5.08 9.3 7.7 21,908 7.08 10.0 8.7 Fy3 7.1 6.9 6.9 7.1 10.2 6.3 7.6 EPS chg (yoy %) PBR (x) Dvd Yield (%) ROE (%) Cur Yr Nxt Yr Fy3 Cur Yr Nxt Yr Fy3 Cur Yr Nxt Yr Fy3 Cur Yr Nxt Yr 33.1 30.0 25.2 1.9 1.7 1.5 4.0 4.9 6.1 19.6 19.6 21.4 22.3 19.7 2.1 1.8 1.6 4.3 5.3 6.4 21.8 23.4 19.1 15.0 14.4 1.5 1.3 1.2 4.6 5.5 6.2 17.7 17.9 28.3 23.5 20.8 1.8 1.6 1.4 3.1 3.8 4.6 20.0 20.0 37.6 23.7 20.0 2.9 2.4 2.0 1.6 2.0 2.4 22.2 21.3 30.1 21.1 22.9 1.5 1.2 1.1 2.6 3.1 3.8 16.8 17.8 21.6 15.5 15.0 1.6 1.4 1.2 1.7 2.0 2.4 16.1 17.0 Fy3 21.8 24.5 18.3 21.0 21.4 19.0 17.3 21.2 17.8 19.3 19.3 20.5 16.8 16.9 18.1 20.8 12.8 19.8 15.1 18.6 16.4 16.0 24.5 10.4 11.7 12.8 7.9 9.8

H-Share Avg
CCB-A BOC-A ABC-A BoCom-A CMB-A Citic-A Minsheng-A SH Pudong-A Industrial Bk-A Huaxia-A Beijing-A Nanjing-A Ningbo-A

10.7

8.9

7.4

27.3

21.6

19.7

1.9

1.6 1.4
1.5 1.3 1.3 1.3 1.8 1.7 1.2 1.3 1.5 1.4 1.5 1.6 2.2 1.7 1.9 2.9 1.4 1.0 1.6 1.1 0.9

3.1

3.8 4.6
5.3 6.0 4.2 4.2 2.5 2.3 2.3 1.5 2.5 2.2 2.4 3.4 2.1 3.1 5.0 5.4 3.8 3.7 2.2 3.1 3.7

19.2

19.6 20.5
22.8 18.3 19.4 19.4 21.1 17.4 16.6 17.7 20.4 13.8 18.6 15.9 17.1 15.9 15.1 23.8 9.4 11.1 12.8 7.5 7.7

A-Share Avg
Std Chartered BOCHK Hang Seng BEA Dah Sing Wing Hang Chong Hing Fubon HK

192,201 125,581 129,736 54,646 45,356 30,349 21,908 23,579 22,691 8,580 11,731 3,997 4,827 55,984 28,751 26,475 7,740 1,730 3,204 923 552

4.66 3.35 2.68 6.01 13.59 5.69 5.39 13.99 25.79 11.71 12.83 11.40 13.15 210.00 21.15 107.70 29.60 12.10 84.45 16.50 3.66

10.8

8.4 8.8 8.7 8.7 11.8 12.2 9.3 10.0 9.1 13.1 10.9 13.0 16.6

7.0 7.6 7.1 7.1 9.5 10.0 7.5 8.3 7.6 10.6 8.9 10.3 13.4

8.8

6.2 6.6 5.9 5.9 8.1 8.7 6.3 7.3 6.7 9.3 7.8 9.4 11.3

7.7

16.6

17.8 22.0 13.2 13.2 32.0 21.3 5.3 (9.9) 13.5 28.8 23.3 (1.8) 36.7 19.4 22.2 8.3 28.4 17.8 33.8 70.9 na

21.9

19.4 15.4 21.8 21.8 23.2 21.8 23.1 20.6 20.0 24.4 23.0 25.7 24.7 16.6 15.1 14.8 16.2 20.2 16.8 11.6 34.5

15.5

12.3 15.0 19.6 19.6 18.1 14.8 19.2 13.0 13.2 14.0 13.9 10.0 18.6 14.3 14.1 11.9 14.6 13.9 9.5 8.0 44.2

1.7

1.7 1.4 1.5 1.5 2.2 1.9 1.4 1.6 1.7 1.6 1.8 1.8 2.5 1.9 2.0 3.2 1.4 1.1 1.8 1.1 1.0

1.5 1.3

1.2 1.1 1.1 1.1 1.5 1.4 1.0 1.1 1.2 1.2 1.3 1.4 1.9 1.5 1.8 2.6 1.3 1.0 1.5 1.0 0.9

2.6

4.8 4.6 3.3 3.3 2.1 1.8 2.0 1.6 2.2 1.6 2.0 2.7 1.7 2.8 4.3 5.0 3.4 2.7 1.5 2.7 2.5

3.2 3.4

6.4 6.4 4.5 4.5 2.8 2.7 2.4 1.7 3.0 1.9 3.1 2.9 2.4 3.6 5.6 5.7 4.5 4.6 2.8 3.4 6.3

18.1

22.0 17.6 19.8 19.8 21.6 16.4 15.3 18.2 22.0 13.0 17.4 14.9 16.9 14.9 14.3 23.1 9.0 9.3 12.2 6.8 6.7

18.3 18.2

HK Avg

14.9

13.2 14.6 14.4 17.0 12.2 15.5 16.6 15.8

12.7 11.0

11.4 12.7 12.6 14.6 10.2 13.3 14.9 11.7

9.9 11.1 11.2 12.8 8.9 12.1 13.8 8.1

28.7

18.2

16.3

1.7

1.6 1.4

3.1

3.8 4.6

12.0

12.9 13.7

Source: Bloomberg, ICBCI Estimates

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Equity Research
Peer Comparison
1H10 Profitability NIM (%) NIS (%) Interest earning assets yield (%) -Loans and advances to customer yield (%) Interest bearing liabilities yield (%) -Customer deposit yield (%) Non interest income to total operating income (%) -Net fee and commission income to operating income (%) Cost-to-income ratio (%) -Cost-to-income ratio ex business tax (%) Annualized ROAA (%) Annualized ROAE (%) Capital adequacy Core CAR (%) Total CAR (%) Total equity to assets (%) Gearing (Assets / Equity) Shareholder's Equity / Risk weighted assets (%) Asset quality NPL ratio (%) Allowances to non-performing loans (%) Allowances to total loans (%) Credit Cost (%) Liquidity Loan-to-deposit ratio (%) Loan to assets (%) Taxation Effective Tax Rate (%) Business tax/operating income (%) Growth Rates Net Interest Income Growth (%) Net Fee and Commission Income Growth (%) Total operating income Growth (%) Operating Expense Growth (%) Pre-Provision Profit Growth (%) Provision expense growth (%) Profit Before Tax Growth (%) Net Income (Att. to shareholders) Growth (%) Loan Growth (net) (%) Deposit Growth (%) Asset Growth (%) Equity Growth (%) Per share data (Rmb) EPS BVPS
Source: Company data

ABC 2.47 2.41 3.73 5.16 1.32 1.28 17.93 16.50 42.95 37.45 0.99 25.10 6.72 8.31 3.66 27.36 6.85 2.32 136.11 3.15 0.85 55.38 47.69 20.96 5.50 33.15 31.98 30.34 32.44 28.79 4.96 35.75 40.12 11.63 11.74 9.16 3.35 0.17 1.31

CCB 2.41 2.32 3.68 5.03 1.36 1.29 23.37 21.88 33.64 27.90 1.43 24.00 9.27 11.68 5.67 17.64 10.30 1.22 204.72 2.49 0.38 62.26 52.26 23.23 5.74 14.96 43.63 16.93 11.98 19.62 (1.51) 27.22 26.76 11.14 10.99 6.37 3.79 0.30 2.48

BOC 2.04 1.95 3.28 4.12 1.33 1.28 30.87 21.30 39.96 34.76 1.18 19.79 9.33 11.73 5.86 17.07 10.12 1.20 188.44 2.26 0.42 74.69 55.67 22.64 5.20 22.94 23.31 23.22 26.52 21.11 62.81 25.39 26.87 9.85 9.04 10.72 4.74 0.20 2.11

BoCom 2.43 2.36 3.98 5.03 1.62 1.32 19.46 14.38 36.02 na 1.16 22.61 8.94 12.17 5.32 18.81 na 1.22 161.17 1.97 0.51 70.45 55.82 21.88 na 33.95 30.11 33.54 41.79 28.19 16.69 30.77 30.08 12.67 13.95 12.09 19.90 0.40 3.73

CMB 2.56 2.48 3.81 4.58 1.34 1.23 20.13 16.21 40.79 38.79 1.21 24.27 8.05 11.60 5.47 18.28 9.25 0.67 297.59 1.98 0.37 75.94 58.30 22.47 2.00 41.45 32.26 33.04 13.25 52.11 (7.51) 67.32 59.80 12.27 8.97 10.37 34.55 0.65 5.79

Citic 2.60 2.51 3.89 4.91 1.38 1.30 12.53 9.89 37.09 30.46 1.17 20.09 8.26 10.95 5.89 16.99 8.41 0.81 169.92 1.38 0.29 73.21 61.48 24.10 6.63 42.20 30.36 39.69 34.00 43.27 21.88 44.84 45.35 11.98 21.42 9.23 5.51 0.27 2.82

Minsheng

2.92 2.80 4.37 5.50 1.57 1.43 18.85 17.29 46.79 39.83 1.17 19.28 8.32 10.77 5.94 16.83 8.53 0.79 229.42 1.80 0.46 72.36 58.55 23.17 6.96 51.72 96.21 22.85 38.30 11.59 (11.98) 21.17 20.23 8.05 16.99 14.33 9.00 0.40 4.35

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Equity Research
Financials
P&L
YE 31 Dec (Rmb mn) Interest income Interest expense Net interest income Fee and commission income Fee and commission expense Net fee and commission income Net trading gain/(loss) Net gain/(loss) on financial assets and liabilities designated at FVTPL Net gain/(loss) on investment securities Other operating income Total Operating income Operating expenses -Business tax and surcharge Pre-Provision Operating Profit (PPOP) -Impairment losses on Loans and advances to customers -Other provisions Share of losses of an associate Profit before tax Income tax Net Profit Net profit (attributable to equity shareholders) Net profit (attributable to minority interests) Dividend Basic and diluted earnings per share (in RMB) DPS
Source: Company data, ICBCI Estimates

2008A 321,855 (121,852) 200,003 24,794 (996) 23,798 (895) (3,603) 324 (5,611) 214,016 (110,175) (13,223) 103,841 (39,858) (11,620) (14) 52,349 (896) 51,453 51,474 (21) 0 na na

2009A 296,147 (114,508) 181,639 37,285 (1,645) 35,640 444 2,052 (173) 4,035 223,637 (109,567) (12,567) 114,070 (44,289) 4,147 0 73,928 (8,926) 65,002 64,992 10 20,000 0.25 0.08

2010F 358,466 (117,041) 241,425 51,143 (2,444) 48,699 488 (340) 286 3,788 294,345 (133,672) (17,110) 160,674 (49,320) 263 0 111,616 (25,114) 86,503 86,491 12 37,191 0.27 0.11

2011F 439,646 (139,496) 300,151 68,626 (3,837) 64,789 542 (374) 323 3,981 369,411 (165,753) (20,885) 203,659 (56,963) 278 0 146,974 (34,539) 112,435 112,420 15 48,341 0.35 0.15

2012F 530,000 (166,581) 363,419 87,396 (5,468) 81,927 618 (411) 367 4,208 450,127 (200,561) (25,070) 249,566 (65,875) 382 0 184,073 (43,257) 140,816 140,798 18 60,543 0.43 0.19

Consolidated Balance Sheet


YE 31 Dec (Rmb mn) Net Loans and advances to customers Gross Loans and advances to customers Corporate loans Personal loans Discounted bills -Non-performing loans -Provision Investments Other interest earning assets Total interest-earning assets Total assets Average Total interest-earning assets Risk weighted assets and market risk capital adjustment Due to customers Total interest-bearing liabilities Total liabilities Issued share capital Reserve and Retained earnings Minority Interests Total Equity Average Total interest-bearing liabilities Core capital base Net capital base BVPS (Rmb)
Source: Company data, ICBCI Estimates

2008A 3,014,984 3,100,159 2,377,556 464,505 258,098 134,067 (85,175) 2,555,447 1,253,031 6,908,637 7,014,351 6,392,071 3,396,301 6,097,428 6,479,412 6,723,810 260,000 30,445 96 290,541 6,059,406 273,022 319,483 1.12

2009A 4,011,495 4,138,187 2,994,794 789,456 353,937 120,241 (126,692) 3,037,765 1,628,934 8,804,886 8,882,588 7,983,715 4,373,006 7,497,618 8,312,648 8,539,663 260,000 82,819 106 342,925 7,603,424 338,174 440,349 1.32

2010F 4,967,331 5,142,312 3,825,653 1,086,495 190,793 113,645 (174,981) 3,189,653 1,898,223 10,230,188 10,329,351 9,340,988 5,335,067 8,749,720 9,599,374 9,787,751 324,794 216,683 123 541,600 8,780,368 536,868 652,190 1.67

2011F 5,899,157 6,129,635 4,572,438 1,316,556 190,647 129,948 (230,479) 3,381,032 2,165,950 11,676,617 11,800,130 10,664,371 6,295,379 10,167,175 11,068,118 11,194,431 324,794 280,762 143 605,699 10,123,801 600,985 732,415 1.86

2012F 6,812,707 7,106,957 5,308,584 1,551,344 185,509 143,561 (294,251) 3,651,515 2,476,665 13,235,138 13,386,936 12,090,503 7,239,686 11,763,421 12,608,967 12,700,960 324,794 361,017 165 685,976 11,634,425 681,278 832,012 2.11

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Equity Research
Financial Ratios
YE 31 Dec Profitability NIM (%) NIS (%) Interest earning assets yield (%) -Loans and advances to customer yield (%) Interest bearing liabilities yield (%) -Customer deposit yield (%) Non interest income to total operating income (%) -Net fee and commission income to operating income (%) Cost-to-income ratio (%) -Cost-to-income ratio ex business tax (%) ROAA (%) ROAE (%) RoRWA (%) Dividend Payout ratio (%) Capital adequacy Core capital adequacy ratio (%) Capital adequacy ratio (%) Total equity to assets (%) Gearing (Assets / Equity) Shareholder's Equity / Risk weighted assets (%) Asset quality Non-performing loan ratio (NPL / Total customer loans) (%) Provision coverage ratio (%) Allowances to total loans (%) Provision loan losses / PPoP (%) Provision / average gross customer loans (%) Credit Cost (%) Liquidity Loan-to-deposit ratio (%) Investment-to-asset (%) Loan to assets (%) Taxation Effective Tax Rate (%) Business tax/operating income (%) Growth Rates Net Interest Income Growth (%) Net Fee and Commission Income Growth (%) Total operating income Growth (%) Operating Expense Growth (%) Pre-Provision Profit Growth (%) Provision expense growth (%) Profit Before Tax Growth (%) Net Profit (Attributable to shareholders) Growth (%) Loan Growth (net) (%) Loan Growth (gross) (%) Asset Growth (%) Equity Growth (%)
Source: Company data, ICBCI Estimates

2008A 3.13 3.02 5.04 7.15 2.01 1.98 6.55 11.12 51.48 45.30 0.84 (23.55) 1.52 na 8.0 9.4 4.1 24.1 8.6 4.32 63.53 2.75 38.38 2.82 1.29 50.8 36.4 44.2 1.7 6.2 21.8 3.5 16.7 47.6 (4.6) 88.8 (33.1) 17.6 11.3 (10.8) 32.2 na

2009A 2.28 2.20 3.71 5.25 1.51 1.49 18.78 15.94 48.99 43.37 0.82 20.53 1.67 30.77 7.7 10.1 3.9 25.9 7.8 2.91 105.37 3.06 38.83 3.40 1.07 55.2 34.2 46.6 12.1 5.6 (9.2) 49.8 4.5 (0.6) 9.9 11.1 41.2 26.3 33.1 33.5 26.6 18.0

2010F 2.58 2.50 3.84 5.29 1.33 1.29 17.98 16.54 45.41 39.60 0.90 19.56 1.78 43.00 10.1 12.2 5.2 19.1 10.2 2.21 153.97 3.40 30.70 3.79 0.96 58.8 30.9 49.8 22.5 5.8 32.9 36.6 31.6 22.0 40.9 11.4 51.0 33.1 23.8 24.3 16.3 57.9

2011F 2.81 2.74 4.12 5.59 1.38 1.33 18.75 17.54 44.87 39.22 1.02 19.60 1.93 43.00 9.5 11.6 5.1 19.5 9.6 2.12 177.36 3.76 27.97 4.20 0.93 60.3 28.7 51.9 23.5 5.7 24.3 33.0 25.5 24.0 26.8 15.5 31.7 30.0 18.8 19.2 14.2 11.8

2012F 3.01 2.95 4.38 5.88 1.43 1.38 19.26 18.20 44.56 38.99 1.12 21.81 2.08 43.00 9.4 11.5 5.1 19.5 9.5 2.02 204.97 4.14 26.40 4.64 0.93 60.4 27.3 53.1 23.5 5.6 21.1 26.5 21.8 21.0 22.5 15.6 25.2 25.2 15.5 15.9 13.4 13.3

Agricultural Bank of China - 2 September 2010

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Sales
Telephone: (852) 2683 3888 Fax: (852) 2683 3881 Institutional Sales Team YE Weidong Head of Sales 2683 3873 Ian TOH Deputy Head of Sales 2683 3183 FU Yung 2683 3189 Mariapia PAZIENZA 2683 3195 Alex KO 2683 3133 Eric LEUNG 2683 3192 Adrian FONG 2683 3185 Elena KONG 2683 3190 Queenie CHAN 2683 3186 Institutional Sales Trading Team Dick MA Gloria YIP Institutional Sales Support Helen YU Ashley LEE

Research
Telephone: (852) 2683 3888 Fax: (852) 2683 3222 2683 2683 2683 2683 2683 2683 2683 2683 2683 2683 2683 2683 2683 2683 2683 3228 3238 3233 3226 3215 3232 3229 3235 3236 3212 3216 3217 3227 3213 3223 Alex FAN Head of Research (Strategy) Carrie CHAN (Consumer products) Duncan CHAN (Materials) Alex CHENG (Consumer products) Pius CHENG (Financials) Ernie HON (Pharmaceutical / Medical) Mimi KONG (Financials) Kasey LAM (Property) Alice LEUNG (Automobile) Ivan LIN (Financials) Moses MA (Transportation) Kary SEI (Telecoms / Technology) Angus TO (Macro) Philip TSE (Property) Anna YU (Energy)

2683 3180 2683 3181

2683 3196 2683 3191

Important Disclosures
ICBCI Ratings BUY HOLD SELL SPECULATIVE BUY SPECULATIVE SELL : : : : : Stock Stock Stock Stock Stock with with with with with potential potential potential potential potential return of over 15% over next 12 months return of +15% to -15% over next 12 months loss of over 15% over next 12 months return of over 20% over next 3 months, with high volatility loss of over 20% over next 3 months, with high volatility

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