CHIB: Trends Continue to Impress While Valuation Is Supportive

The Week That Was in ASEAN@Smartkarma - BCA's Transactional, ASSA & Anteraja, and Philippine Banks

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Thematic (Sector/Industry)

Philippines Financials / Thematic (Sector/Industry)

China Banking Corporation dedicates itself to mainly corporate credit (79% of Loan book) and to a lesser extent consumer segments (20% of credit), backed by source of funding balanced by Savings-heavy CASA (56% of Deposits) and by time deposits (44%). FY20/19 results show strong fundamental trends. There were improvements in Profitability, in NIM/Spread, in Efficiency, in Capital Adequacy, in Liquidity, and in Provisioning. There was though some deep deterioration in headline Asset Quality, reflected by a sky-high rise in Loan Loss Provisions to counter the swelling of Recorded Investment of Impaired Loans and Impaired Loans, net of Reserves. The bottom-line was supported by firm “Core Income” growth, rooted in much lower Interest Expenses, combining with Margin and Efficiency gains, and with forceful expansion of non-core streams, which more than offset the aforementioned jump in LLPs which reduced Comprehensive Income growth to 6.3% YoY.<div class="content-highlight">A FV of 7%, a PBV of 0.59x, a Dividend Yield of 4.3%, an Earnings Yield of 20.6% and a Total Return Ratio of 3.4x are not unappealing. CHIB commands a top decile PH Score™ (10) which captures benign value-quality trends, including a supportive valuation variable. The VFM ranking is extremely elevated too (top decile globally) which encapsulates aforementioned fundamental momentum, valuation, and technicals.</div>

China Banking Corporation dedicates itself to mainly corporate credit (79% of Loan book) and to a lesser extent consumer segments (20% of credit), backed by source of funding balanced by Savings-heavy CASA (56% of Deposits) and by time deposits (44%). FY20/19 results show strong fundamental trends. There were improvements in Profitability, in NIM/Spread, in Efficiency, in Capital Adequacy, in Liquidity, and in Provisioning. There was though some deep deterioration in headline Asset Quality, reflected by a sky-high rise in Loan Loss Provisions to counter the swelling of Recorded Investment of Impaired Loans and Impaired Loans, net of Reserves. The bottom-line was supported by firm “Core Income” growth, rooted in much lower Interest Expenses, combining with Margin and Efficiency gains, and with forceful expansion of non-core streams, which more than offset the aforementioned jump in LLPs which reduced Comprehensive Income growth to 6.3% YoY.A FV of 7%, a PBV of 0.59x, a Dividend Yield of 4.3%, an Earnings Yield of 20.6% and a Total Return Ratio of 3.4x are not unappealing. CHIB commands a top decile PH Score™ (10) which captures benign value-quality trends, including a supportive valuation variable. The VFM ranking is extremely elevated too (top decile globally) which encapsulates aforementioned fundamental momentum, valuation, and technicals.

CHIB: Better Capitalisation, Liquidity & Efficiency Offset Asset Quality Concerns