ICBC: Subpar-Mediocre Trends but Inexpensive

Industrial and Commercial Bank of China – Negative Jaws Pressure Results

Battle Lines Drawn As BABA Builds Out First/Last-Mile Capacity; But Who Will Fund 75+ Bn CNY CapEx?

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

According to our model PH Score™, ICBC seems headed in the right direction.  The valuation variable within the model helps the Score but other variables are broadly benign. Adding technical factors and the low valuation, ICBC ranks in the top quartile globally of our VFM (Valuation, Fundamentals, Momentum) universe. Elsewhere in China, recent bank results show subpar or mixed fundamental momentum and trends. This is not the case with Big Bertha, ICBC. However, it would be strange if this most systemic of banks did not reflect trends elsewhere. And it is with Asset Quality that the bank shows more than a fair share of stress with NCOs and “doubtful loans” plus “loss loan” buckets in particular showing outsized growth, indicating bad asset migration.Elsewhere, on a LTM basis, the bank's PH Score™ of 9 reflects progression in Profitability, in Efficiency, in Capital Adequacy, in Provisioning as well as the valuation variable though  NIM/Spread compressed and Liquidity eroded somewhat. Having said that, the LDR is at a "sweet spot" level. <div class="content-highlight">A FV of 6% and a PBV of 0.47x are not unattractive. These are below thresholds of 10% and 1x, respectively. An Earnings Yield of 24.1%, a Dividend Yield of 7.3%, and a Total Return Ratio of 3.3x underpin the valuation thesis.  </div>Given the current hostile environment, ICBC will come in for greater external scrutiny regarding its numbers. Others will have moved on to sunnier climes - wherever that may be. Whether management "manages" things more than managers elsewhere is a difficult one to decipher but the authorities are clearly on top of the situation and the bank is not turning off the credit spigot. Disclosure was sufficient for such a globally systemic entity. For those who want to lend money to China, the Dividend Yield alone may provide sufficient compensation for systemic risks. Others may balk at the yield on offer and may ask if something might not be quite right.

According to our model PH Score™, ICBC seems headed in the right direction.  The valuation variable within the model helps the Score but other variables are broadly benign. Adding technical factors and the low valuation, ICBC ranks in the top quartile globally of our VFM (Valuation, Fundamentals, Momentum) universe. Elsewhere in China, recent bank results show subpar or mixed fundamental momentum and trends. This is not the case with Big Bertha, ICBC. However, it would be strange if this most systemic of banks did not reflect trends elsewhere. And it is with Asset Quality that the bank shows more than a fair share of stress with NCOs and “doubtful loans” plus “loss loan” buckets in particular showing outsized growth, indicating bad asset migration.Elsewhere, on a LTM basis, the bank's PH Score™ of 9 reflects progression in Profitability, in Efficiency, in Capital Adequacy, in Provisioning as well as the valuation variable though  NIM/Spread compressed and Liquidity eroded somewhat. Having said that, the LDR is at a "sweet spot" level. A FV of 6% and a PBV of 0.47x are not unattractive. These are below thresholds of 10% and 1x, respectively. An Earnings Yield of 24.1%, a Dividend Yield of 7.3%, and a Total Return Ratio of 3.3x underpin the valuation thesis.  Given the current hostile environment, ICBC will come in for greater external scrutiny regarding its numbers. Others will have moved on to sunnier climes - wherever that may be. Whether management "manages" things more than managers elsewhere is a difficult one to decipher but the authorities are clearly on top of the situation and the bank is not turning off the credit spigot. Disclosure was sufficient for such a globally systemic entity. For those who want to lend money to China, the Dividend Yield alone may provide sufficient compensation for systemic risks. Others may balk at the yield on offer and may ask if something might not be quite right.

ICBC: Model Says "Yes" Though the Market Says "No".

ICBC (H)

ICBC: Model Says "Yes" Though the Market Says "No".