CHINESEBANKSRATINGUPGRADE：KEEPDANCINGBUTTHEMUSICMAYSTOP;BUYLAGGARDSONGDPRECOVERY0107

1、top picksbuybuybuybuyholdholdbuybuybuybuybuyholdholdholdholdbuybuybuybuyselldeutsche bankmarkets researchasiachinabanking / financebanksindustrychinese banks -rating upgradedate7 january 2013recommendationchangejudy zhangtracy yukeep dancing but the music may stop;buy laggards on gdp recoverygdp rec

2、overy reduces risks; upgrading laggard banks from hold to buywe believe chinas gdp recovery will mitigate credit risks for banks. in light ofa better operating environment, we raise h-share listed banks target prices by19.2% on the back of a 7.7% rise in fy13e npat and higher terminal roe. ournew ta

3、rget prices suggest average potential sector upside of 17%. we upgradeccb, abc, cncb and pab to buy, as they underperformed the sector in 2012.we identify a notable slowdown in wmp sales resulting in a sharp fall in non-research analyst(+852) 2203 sukrit khatriresearch associate(+852) 2203 research

4、analyst(+852) 2203 bank financing as a key risk going into 2h13, which could lead to a 15%correction from current levels. this explains our house view that banks shouldcontinue to underperform insurers and the msci china index in 2013.a recovering economy to shield banks from rising default risks of

5、 wmpsas we have highlighted before, this round of economic recovery is driven by asharp increase in non-bank financing to the corporate sector (rmb2tr, up 4.9times yoy for september-november 2012), which is partly financed by theexponential sales of off-balance sheet wmps. a temporary bounce in thee

6、conomy will defer the default risk on these products, thereby encouragingcontinuance of this practice. however, the sustainability of chinas economicrecovery is incumbent on the pace of corporate profit recovery, as it affects theability to repay debts and the appeal of wmps to depositors. this also

7、 explainswhy we have identified a notable slowdown in wmp sales leading to a sharpdecline in non-bank financing as a key risk going into 2h13, which, onmaterialization (more likely to happen during an economic slowdown), couldlead to a 15% correction and a possible reduction in our new target prices

8、.raising 2013e npat by 7.7%; risk-reward turning positive for laggardsreflecting a recovering economy, we raise fy13e net profit for h-share listedchinese banks by 7.7%, to rmb894bn, on a 7bps rise in nim, a decrease incredit costs of 13bps, to 50bps (from 63bps), and stronger fee income growthof 14

9、.3%. our scenario analysis suggests 19.9% potential upside in the eventthat the sector trades back to historical p/b of 1.61x, the mid-point of itsvaluation range since 2009. considering 15% potential downside in the eventof slowing wmp sales, the risk-reward offered by chinese banks is turningmore

10、favourable, driven by a leg-up from gdp recovery. on current valuations,we believe the risk-reward is most favourable for cncb among the mid-sizedchinese banks, which has been significantly de-rated over the past three years.hence, we upgrade cncb from hold to buy and add it to our top picks. wealso

11、 upgrade ccb and abc, which underperformed the sector in 2012.we maintain a relative preference for large banks and insurersin 2012, while share prices of h-share listed banks rose by an average of 16%,they underperformed the msci asia-ex japan financial index by 9% and largechinese insurers by 14%.

12、 in light of continued global policy easing and freshliquidity unleashed by the reversal of the yen trade in favour of risk assets, weexpect chinese banks to benefit from a surge in global liquidity. our top picksicbc (1398.hk),hkd5.79bank of china (3988.hk),hkd3.62china citic bank (0998.hk),hkd4.80

13、industrial bank (601166.ss),cny16.79companies featuredicbc (1398.hk),hkd5.79china construction bank(0939.hk),hkd6.50agri. bank of china (1288.hk),hkd3.95bank of china (3988.hk),hkd3.62bank of communications(3328.hk),hkd6.10china merchants bank-h(3968.hk),hkd17.78china citic bank (0998.hk),hkd4.80chi

14、na minsheng bank (1988.hk),hkd9.53chongqing rural bank (3618.hk),hkd4.50industrial bank (601166.ss),cny16.79shanghai pudong bank(600000.ss),cny10.02ping an bank (000001.sz),cny15.99bank of beijing (601169.ss),cny9.30bank of nanjing (601009.ss),cny9.09bank of ningbo (002142.sz),cny10.55china everbrig

15、ht bank(601818.ss),cny3.07this report changes, ratings, estimates,and price targets for several companiesunder coverage. for a detailed listing ofthese changes, see figures 2 & 3 on p.3&4.are icbc, boc, cncb and industrial bank. on our estimates, the listed banksare trading at 1.3x 2012e p/b and 6.7

16、x 2013e p/e. we value chinese banks ona three-stage gordon growth model. we maintain our relative preference forchina insurers, as they should be less affected by interest rate deregulationand an unexpected disappointment in chinas economic data. (see page 3 forrisks.)_deutsche bank ag/hong kongdeut

17、sche bank does and seeks to do business with companies covered in its research reports. thus, investors shouldbe aware that the firm may have a conflict of interest that could affect the objectivity of this report. investors shouldconsider this report as only a single factor in making their investme

18、nt decision. disclosures and analystcertifications are located in appendix 1. mica(p) 072/04/2012.21%7 january 2013bankschinese banks - rating upgradeinvestment summaryraising target prices by 19.2% on higher earnings forecasts;upgrading underperforming banks from hold to buyin 2012, while h share l

19、isted banks rose by an average of 16%, they underperformedthe msci asia-ex japan finance index by 9% and large china life insurers, such aschina life and cpic, by 14%. icbc (up 19%), boc (21%) and msb (33%) wereoutperformers among their peers in 2012. going into 2013, we believe chinas gdprecovery w

20、ill mitigate both credit and liquidity risks for banks. in addition, acontinuation of global policy easing, along with new liquidity unleashed by the yencarry trade in favour of risk assets, should benefit the banking sector in terms of fundflows. therefore, we upgrade abc, ccb, cncb and ping an ban

21、k from hold to buy, asthey underperformed the sector in 2012 (figure 1). we continue to prefer the largebanks to mid-sized banks and maintain icbc, boc and industrial bank as our top picks.figure 1: yearly performance: listed chinese banks vs. index performance40%35%30%25%20%15%10%5%33%33%32%30%27%

22、25%20%19%19%17% 16%15%15%9%8% 8%6% 5% 5%3%0%-5%-1%source: deutsche bank, bloomberg finance lp, company datain light of a better operating environment, we raise target prices of the h-share listedchinese banks in our universe by an average of 19.2% due to an increase of 7.7% in ourfy13 net profit for

23、ecast on a higher nim of 2.5% (up 7 bps), a decrease in bad debtcharges by 13bps, to 50bps (from 63bps), stronger fee income growth of 14.3% yoyand higher terminal roe assumptions. our new target prices for the h-share listedbanks are equivalent to an average valuation of 1.52x 2012e p/b, which is s

24、lightlybelow the mid-point of their valuation range of 1.61x historical p/b since 2009.we identify a notable slowdown in wmp sales as a key risk going into 2013 because itcould lead to a sharp decline in non-bank financing, resulting in a negative creditimpulse on the corporate sector. if these risk

25、s were to materialize, driven by factorssuch as higher-than-expected inflation and the emergence of one or several majorcredit events, the full recovery process in china would be limited, with deterioratingcredit, liquidity and capital risks for banks. in such an event, our scenario analysissuggests

26、 a 15% correction from current prices and a 27% reduction in our new targetprices.should the unlikely scenario highlighted above take place and policy responses fail torevitalize non-bank financing, with banks unable to accommodate the credit withdrawalwith additional loan growth, this would lead to

27、 a downward spiral in chinas economicpage 2deutsche bank ag/hong kong7 january 2013bankschinese banks - rating upgradegrowth. our worst-case scenario analysis suggests a 28% share price correction of theh-share listed banks from current levels and a 38% reduction in our new target prices.a recoverin

28、g economy should help corporate profitability and improve the debtservicing ability. lower default risks on wmps would sustain their appeal to depositorsand aid continued growth in non-bank financing. nonetheless, we expect potentialpolicy responses by the cbrc to cope with the risks arising from ra

29、pidly-growing offbalance sheet wmps to have a larger negative impact on banks with higher exposuresuch as cmb, msb and bocom.downside risks include a slowing economy, credit quality deterioration and tighter bankpolicies leading to higher capital requirements and lower income. upside risks arestrong

30、er-than-expected economic recovery, which would shield the banks from risksand raise profitability and continued policy relaxation to improve the risk-reward forchina equities.figure 2 shows the changes in ratings and target prices and also the implied valuationfor the listed chinese banks in our co

31、verage universe.figure 2: chinese banks: changes in target prices and new valuation metrics(rmb m)new ratingold ratingnew tp (hk$)old tp (hk$)change in tpfy13 targetfy13 targetfy13 targetpbpediv yieldicbcccbabcbocbocomcmbcncbminsheng hcrcbbuybuybuybuyholdholdbuyholdbuybuyholdholdbuyholdholdholdholdb

32、uy6.807.454.494.286.9018.976.089.825.005.876.383.673.696.4313.814.427.324.0915.9%16.8%22.3%15.9%7.3%37.4%37.5%34.2%22.1%1.501.401.351.091.001.501.011.151.068.117.897.577.256.989.176.136.957.193.7%3.8%4.0%4.0%4.3%2.4%4.1%3.2%4.2%h-share bank average19.2%new ratingold ratingnew tp (hk$)old tp (hk$)cha

33、nge in tpfy13 targetpbfy13 targetpefy13 target divyieldspdbindbminsheng apabbobjbonjbonbcebbuybuyholdbuyholdholdsellholdbuybuyholdholdholdholdsellhold12.0019.808.1919.209.709.609.003.308.8914.776.0314.517.467.897.252.7035.1%34.1%35.8%32.3%30.0%21.6%24.1%22.3%1.101.321.191.051.051.031.021.036.588.117

34、.208.777.446.886.475.723.0%1.9%3.1%1.7%2.2%4.0%2.7%5.2%a-share bank averagesource: deutsche bank estimatesaverage for h-share and a-share is weighted by the market cap as of 2nd january 2013deutsche bank ag/hong kong31.9%page 37 january 2013bankschinese banks - rating upgradefigure 3 shows the chang

35、es in our earnings forecasts for the listed chinese banksunder our coverage.figure 3: chinese banks: revised fy13 npat, ppop and cost to income ratio2013, rmb mnpatppopcirpriorrevisedchgpriorrevisedchgpriorrevisedchgicbcccbabcbocbocomcmbcncbmsbcrcbh-listed bank averagespdbindustrial bankping an bank

36、bobjbonjbonbceba-listed bank average221,683177,293143,575120,83657,81438,82734,36131,6595,048831,09730,86229,12411,96010,3213,8433,66221,529111,302236,032190,289155,613130,35459,24443,76337,55036,1995,216894,26033,94431,03413,83611,4704,1443,98623,298121,7126.47%7.33%8.39%7.88%2.47%12.7%9.28%14.3%3.

37、33%7.7%9.99%6.56%15.69%11.14%7.84%8.83%8.21%9.47%343,062274,096244,619198,55393,27363,26658,61754,2017,8941,337,58052,36147,22520,91016,7325,8595,79734,320183,203349,644284,276241,189203,14292,17668,47859,38959,4947,8911,365,67953,26349,15422,03517,3386,0426,11036,469190,4121.92%3.71%-1.40%2.31%-1.1

38、8%8.24%1.32%9.76%-0.04%2.27%1.72%4.09%5.38%3.62%3.14%5.40%6.26%3.96%38.8%40.5%45.4%47.1%41.8%46.6%40.6%50.0%45.9%42.6%38.2%42.2%53.7%37.6%40.3%47.7%43.1%42.3%38.8%39.8%46.5%47.5%42.0%45.6%39.8%48.4%45.9%42.6%37.6%40.1%51.5%35.5%39.0%46.5%40.0%40.4%-0.05%-0.71%1.05%0.46%0.21%-1.05%-0.83%-1.62%0.01%-0

39、.07%-0.68%-2.17%-2.25%-2.02%-1.23%-1.20%-3.04%-1.85%source: deutsche bank estimateson our estimates, the listed banks are trading at 1.3x 2012e p/b and 6.7x 2013e p/e.figure 4 shows the valuation of listed chinese banks in accordance with our earningsforecasts for 2012 to 2014.figure 4: chinese bank

40、s valuation summarytickerratingtp current upside mkt. capp/e (x)p/b (x)p/ppoproaeroaadiv. yield (%)price(%)(us$mn) 12e13e14e12e13e12e13e12e13e12e13e12e13eicbc-hccb-habc-h1398.hk0939.hk1288.hkbuybuybuy6.807.454.495.796.503.9517.5% 64,69814.7% 201,18913.7% 15,6327.37.17.06.96.96.66.97.07.41.51.41.41.3

41、1.21.24.94.74.34.64.64.321.6%20.9%21.0%19.8%18.9%19.0%1.4%1.4%1.2%1.3%1.3%1.2%4.1%4.2%4.3%4.4%4.4%4.5%boc-h3988.hkbuy4.283.6218.2%38,9726.46.25.91.00.94.24.016.6%15.2%1.0%1.0%4.7%4.8%bcom-hcmb-hcitic bank-hminsheng-hcrcb3328.hk3968.hk0998.hk1988.hk3618.hkholdholdbuyholdbuy6.90 6.1018.97 17.786.08 4.

42、809.82 9.535.00 4.5013.1%6.7%26.6%3.1%11.0%27,4968,9519,1977,0891,4566.58.95.46.16.66.18.64.86.06.45.98.54.75.47.01.01.60.91.31.10.91.40.81.11.04.15.83.23.85.64.05.53.03.75.317.4%21.3%17.9%24.1%17.2%15.2%17.5%17.5%20.0%15.6%1.1%1.4%1.1%1.5%1.4%1.1%1.3%1.1%1.3%1.2%3.8%2.5%4.7%3.3%4.6%4.9%2.6%5.2%3.3%

43、4.7%h share sector7.06.76.81.31.24.64.420.3%18.3%1.3%1.3%4.2%4.4%icbc-accb-aabc-aboc-abcom-acmb-acitic bank-a601398.ss601939.ss601288.ss601988.ss601328.ss600036.ss601998.ssnrnrnrnrnrnrnrnanananananana4.224.702.892.965.0613.534.32nanananananana175,9917,163134,99991,93931,55037,97021,8956.66.46.36.56.

44、78.46.06.26.26.06.36.38.15.46.36.36.86.06.18.05.31.31.21.21.11.01.51.01.21.11.10.90.91.30.94.54.33.94.24.35.53.64.24.13.94.14.15.23.421.6%20.9%21.0%16.6%17.4%21.3%17.9%19.8%18.9%19.0%15.2%15.2%17.5%17.5%1.36%1.42%1.21%1.03%1.14%1.42%1.14%1.3%1.3%1.2%1.0%1.1%1.3%1.1%4.6%4.7%4.7%4.6%3.7%2.6%4.2%4.8%4.

45、9%5.0%4.7%4.7%2.7%4.6%spdbindustrial bank600000.ss601166.ssbuybuy12.0019.8010.02 19.7% 29,69116.79 17.9% 28,7695.86.15.56.95.57.21.11.30.91.13.63.93.54.319.8%23.3%17.9%18.7%1.1%1.1%1.0%1.0%3.5%2.6%3.6%2.3%minsheng -aceb600016.ss601818.ssholdhold8.193.307.983.072.6% 28,6347.6% 19,7206.35.66.35.35.65.

46、91.41.11.21.03.93.63.83.424.1%21.2%20.0%19.2%1.5%1.2%1.3%1.1%3.1%5.4%3.2%5.6%ping an bank000001.szbuy19.2015.99 20.1% 13,0146.67.37.51.00.94.14.615.7%13.9%0.9%0.9%2.3%2.1%bank of beijing601169.sshold9.709.304.3% 13,0017.67.16.81.11.04.94.717.7%15.0%1.0%1.0%2.2%2.3%bank of nanjing601009.sshold9.609.0

47、95.7%4,2876.86.56.21.11.04.74.517.1%15.8%1.3%1.1%4.1%4.3%bank of ningbo002142.szsell9.0010.55 -14.7% 4,8337.97.68.21.41.25.35.019.0%16.9%1.3%1.1%2.3%2.3%a share sector6.56.36.41.21.14.24.120.3%18.1%1.2%1.2%4.1%4.4%note: closing price as of4-jan-13source: deutsche bank estimates, bloomberg finance lp

48、page 4deutsche bank ag/hong kongroegrowthcoepayout ratioroecoepayout ratiocoepayout ratio7 january 2013bankschinese banks - rating upgradein figure 5, we highlight the valuation methodology used to derive our target prices forthe listed banks under our coverage.figure 5: chinese banks estimated valu

49、es under ex-growth (2017e onwards) scenarios derived from three-stage ggmicbcccbabcbocbocom cmbcncbmsbcrcb spdb* indb*ceb*pab* bobj* bonj* bonb*stage 1 (2012e-2014e)19.0% 18.0% 18.4% 15.4% 14.0% 18.1% 17.0% 19.0% 15.2% 17.8% 18.0% 18.6% 15.0% 16.0% 16.0% 17.0%13.3% 12.6% 12.9% 10.8% 11.2% 14.5% 12.8

50、% 15.2% 10.7% 14.2% 15.2% 13.0% 12.8% 13.4% 11.6% 14.0%11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%30.0% 30.0% 30.0% 30.0% 20.0% 20.0% 25.0% 20.0% 30.0% 20.2% 15.6% 30.0% 15.0% 16.4% 27.7% 17.7%stage 2 (2015e-2017e)16.0% 14.5% 13.5% 12.0% 12.0% 15.0

51、% 13.0% 13.0% 13.0% 15.0% 15.0% 12.5% 13.5% 14.0% 12.0% 15.0%growth11.2%9.4%9.5%6.0%8.4%10.5%9.1%9.8%7.2%10.5% 10.5%6.3%9.5%9.8%6.6%10.5%11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%30.0% 35.0% 30.0% 50.0% 30.0% 30.0% 30.0% 25.0% 45.0% 30.0% 30.0% 50

52、.0% 30.0% 30.0% 45.0% 30.0%terminal stageroe11.3% 11.2% 11.0% 10.3% 10.0% 11.6%9.0%9.7%11.0% 10.5% 11.9% 10.0% 11.0% 10.7% 10.8% 10.1%growth4.5%4.5%4.4%4.1%5.0%4.6%3.6%3.9%3.9%4.2%4.3%3.9%4.4%4.5%3.9%4.6%11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%6

53、0.0% 60.0% 60.0% 60.0% 50.0% 60.0% 60.0% 60.0% 65.0% 60.0% 64.0% 61.5% 60.0% 58.0% 64.0% 55.0%target p/bestimated value (hk$)upside from currentpricecurrent price1.506.8017%5.791.407.4515%6.501.354.4914%3.951.114.2818%3.621.006.9013%6.101.5118.977%17.781.006.0827%4.801.159.823%9.531.065.0011%4.501.1

54、012.0020%10.021.3219.8018%16.791.033.308%3.071.0519.2020%15.991.059.704%9.301.039.606%9.091.039.00-15%10.55source: deutsche bank estimates. closing prices as on 4 january 2013. *: currency rmbdeutsche bank ag/hong kongpage 5241 529 1,3262727 january 2013bankschinese banks - rating upgradea recoverin

55、g economy givesbanks more breathing spacewhile the economy is on a path of recovery, it is being fuelled bynon-bank financing channels.as we mentioned in our report titled chinese banks fy13 outlook the challenge is tosurvive the deposit crunch, dated 4 december 2012, this round of economic recovery

56、has been driven by a sharp increase in non-bank financing to the corporate sector. asfigure 6 and figure 7 show, corporate financing for the months of september tonovember is up 87% yoy, and had contributed 55% to the new corporate deposits forthe first eleven months of 2012. this has been the large

57、st contribution over the past sixyears, and was primarily financed by an exponential increase in sales of off balancesheet wmps by chinese banks and other diversified financial companies.figure 6: breakdown of total corporate financing for themonths of september to novemberfigure 7: sept -nov new co

58、rporate deposits as % of totalnew corporate deposits in the first 11 months of 2012rmb bn3,500non bank corporate financingnew corporate loan60%50%46%55%3,0002,5002,0001,500sept oct12: +181%yoynov12: -1.9%yoy1,7163902,2461,143+87%1,5762,95193140%30%20%10%0%23%7%14%1,0007771,1672,020-10%50001,103535 4

59、09257sep-nov07 sep-nov08 sep-nov09 sep-nov10 sep-nov11 sep-nov12-20%-30%sep-nov2007sep-nov2008sep-nov2009sep-nov2010-17%sep-nov2011sep-nov2012source: deutsche bank, ceicsource: deutsche bank, ceicfigure 8 and figure 9 reveal that banks issued a significant amount of off balance sheetwmps in 2012 to

60、shield themselves from increasing liquidity and credit risks as theseproducts serve as tools to increase funding under the constraints of a slowing systemsunderlying deposit growth, deposit pricing and regulatory loan/deposit ratio of 75%.with the total off-balance sheet wmps amounting to rmb2.8tr a