Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

Bank Of Communications Co H / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/bank-of-communications-co-ltd" target="_blank" data-smartkarma-citation="entities:24562:1" rel="noopener">Bank Of Communications (601328 CH)</a> <a href="https://www.smartkarma.com/entities/bank-of-communications-co-h" target="_blank" data-smartkarma-citation="entities:659:1" rel="noopener">Bank Of Communications Co H (3328 HK)</a> BoCom dedicates itself to mainly corporate credit (63% of Loan book) but also consumer segments, with mortgages commanding a high weighting, backed by a balance of time deposits and transaction accounts.As at China Merchants Bank and Ping An Bank, FY20/19 results show subpar fundamental momentum and trends. However, results can be characterized by light deterioration in general as changes in key variables were not so pronounced. Asset Quality is where the greatest erosion took place with impaired Loans, net of Reserves and the “substandard loan” bucket in particular showing outsized growth. Elsewhere, there was a modest reduction in Profitability and in Liquidity. There was also lightweight erosion in Efficiency, in NIM (Spread was stable) and in Equity/Assets (and in CET1) though other Capitalization ratios were marginally better while Provisioning was softer. “Core Income” showed middling growth YoY, supported by flat Expenses incurred on Deposits and a moderate credit expansion, while a non-extreme increase in LLPs still exerted a negative impact on Comprehensive Income which eased by 12.6% YoY.<div class="content-highlight">A FV of 5%, a PBV of 0.4x, a Dividend Yield of 7.4%, an Earnings Yield of 24.2% and a Total Return Ratio of 3.5x are far from unappealing. The bank commands a subpar PH Score™ (3.5) which captures value-quality trends, including a supportive valuation variable. This Score may be harsh to the bank given the modest nature of erosion across variables, reflecting at best a flattish picture, though the underlying Balance Sheet dynamics of Asset Quality deterioration, limited LLP and charge-off growth, and weaker Provisioning are not ideal.</div>

Bank Of Communications (601328 CH) Bank Of Communications Co H (3328 HK) BoCom dedicates itself to mainly corporate credit (63% of Loan book) but also consumer segments, with mortgages commanding a high weighting, backed by a balance of time deposits and transaction accounts.As at China Merchants Bank and Ping An Bank, FY20/19 results show subpar fundamental momentum and trends. However, results can be characterized by light deterioration in general as changes in key variables were not so pronounced. Asset Quality is where the greatest erosion took place with impaired Loans, net of Reserves and the “substandard loan” bucket in particular showing outsized growth. Elsewhere, there was a modest reduction in Profitability and in Liquidity. There was also lightweight erosion in Efficiency, in NIM (Spread was stable) and in Equity/Assets (and in CET1) though other Capitalization ratios were marginally better while Provisioning was softer. “Core Income” showed middling growth YoY, supported by flat Expenses incurred on Deposits and a moderate credit expansion, while a non-extreme increase in LLPs still exerted a negative impact on Comprehensive Income which eased by 12.6% YoY.A FV of 5%, a PBV of 0.4x, a Dividend Yield of 7.4%, an Earnings Yield of 24.2% and a Total Return Ratio of 3.5x are far from unappealing. The bank commands a subpar PH Score™ (3.5) which captures value-quality trends, including a supportive valuation variable. This Score may be harsh to the bank given the modest nature of erosion across variables, reflecting at best a flattish picture, though the underlying Balance Sheet dynamics of Asset Quality deterioration, limited LLP and charge-off growth, and weaker Provisioning are not ideal.

Bank Of Communications Co H

BoCom: Subpar Trends but Inexpensive