In-line result. CCB reported EPS of Rmb0.59, up 7% yoy, and the result wasin-line with the consensus but slightly below our estimate. Although PPoPgrowth remained strong at 7% in 1H18, we expect net fee income to contractinto 2H18 because CCB started to reduce its WMPs. However, we expectmore growth in the loan book, especially micro-SMEs and consumer, andmore revenue contribution from credit cards to offset the weakness andsupport its PPoP growth in 2H18.
NIM could be under pressure. NIM declined to 2.33% in 2Q18 from 2.35% in1Q18, but was still higher than 2.29% in 2H17. As asset growth decelerated to0% qoq ( 5% yoy) in 2Q18, NII growth was flattish qoq but still up 10% yoy.Loan growth from credit cards ( 12% YTD) and mortgages ( 7% YTD) offsetthe weakness in the corporate sector ( 3% YTD). As such, loan growth slowedto 7.1% yoy in 2Q18 from 7.6% in 1Q18, but we expect more loan quotas to bereceived in 2H18. Deposit cost remained unchanged, but could rise if CCBdecides to grow more loans into 2H18.
Fee income growth remained sluggish. Fee income growth was 1% yoybecause strong credit card fees ( 13% yoy; 3% hoh) offset the contraction inwealth mgmt.-related fees (-21% yoy; 22% hoh). Among them, WMP feesdeclined by 47% yoy because of rising price competition and reduced scales (-2% yoy; 8% hoh). As we believe it has started cutting the scale of WMPs, webelieve its fees could contract into 2H18. Notably, online transaction fees rose60% yoy and accounted for 10% of fees. Despite strong credit card growth,operating cost rose by only 6% yoy and the cost-income ratio remained stable.
Asset quality remained benign. Provision cost rose by 10% yoy in 1H18, butwe expect less provision in 2H18. The migration of performing loans stayed atthe same low in 1H18, but it wrote off less NPLs in 1H18 (Rmb18bn in 1H18vs. Rmb27bn in 1H17) – the NPL ratio stayed flattish at 1.48% and the broadbased NPL ratio declined slightly to 4.30% in 1……[麦格理资本]