Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

China Minsheng Banking A / Equity Bottom-Up

Profitability at <a href="https://www.smartkarma.com/entities/655" target="_blank" data-smartkarma-citation="entities:655:1">China Minsheng Banking A (600016 CH)</a> in 2018 slipped. Similar to other Chinese lenders, rising Loan Loss Provisions exerted a negative pull on the bottom-line, testament to gnawing Asset Quality issues. In addition, similar to some banks, the top-line came under pressure from the rising cost of source of funding. Also the bank was not alone in juicing up its bottom-line with hefty trading gains. Thus Earnings Quality could have been better.Given the underlying squeeze on core Income, it was encouraging to see management at least restrain OPEX.Regarding Asset quality, write-offs soared by 153% YoY while substandard and loss Loans jumped by 68% YoY and 14%, respectively, and Loan Loss Provisions rose by 35.6% YoY. It is perhaps a little surprising then that coverage ratios decreased given the trend in credit costs, NPL migration, and charge-offs.LDR remains quite high though credit growth last year was not gung-ho and broadly in line with Deposit expansion. We do note though a ratcheting up of CRE lending which jumped from 8.8% of the total Loan book to 12.3%.<div class="content-highlight">Shares do not appear optically dear: the bank trades on a P/Book, FV, Dividend and Earnings Yields of 0.7x, 9%, 5.2% and 17.4%, respectively. However, we see better quality value elsewhere, in particular at "The Big Four" which can be termed safer Income opportunities.</div>

Profitability at China Minsheng Banking A (600016 CH) in 2018 slipped. Similar to other Chinese lenders, rising Loan Loss Provisions exerted a negative pull on the bottom-line, testament to gnawing Asset Quality issues. In addition, similar to some banks, the top-line came under pressure from the rising cost of source of funding. Also the bank was not alone in juicing up its bottom-line with hefty trading gains. Thus Earnings Quality could have been better.Given the underlying squeeze on core Income, it was encouraging to see management at least restrain OPEX.Regarding Asset quality, write-offs soared by 153% YoY while substandard and loss Loans jumped by 68% YoY and 14%, respectively, and Loan Loss Provisions rose by 35.6% YoY. It is perhaps a little surprising then that coverage ratios decreased given the trend in credit costs, NPL migration, and charge-offs.LDR remains quite high though credit growth last year was not gung-ho and broadly in line with Deposit expansion. We do note though a ratcheting up of CRE lending which jumped from 8.8% of the total Loan book to 12.3%.Shares do not appear optically dear: the bank trades on a P/Book, FV, Dividend and Earnings Yields of 0.7x, 9%, 5.2% and 17.4%, respectively. However, we see better quality value elsewhere, in particular at "The Big Four" which can be termed safer Income opportunities.

China Minsheng: Unless There Is Opposing Wind, a Kite Cannot Rise.