Event description
China Merchants Bank released its 2021 results KuaiBao, with an annual operating income of 331.234 billion yuan (+ 14.03%) and a net profit of 119.922 billion yuan (+ 23.20%). The growth rate of income and net profit was further accelerated compared with the first three quarters of 2021.
Event comment
Accelerated income growth is the core bright spot. In 2021, due to the narrowing of net interest margin and the decline of loans, the income growth of medium and large banks is generally low. However, China Merchants Bank's annual income growth rebounded to 14.03 per cent (13.54 per cent in the first three quarters), of which net interest income growth rose to 10.21 per cent year-on-year, achieving double-digit growth (8.74 per cent in the first three quarters), a very strong performance. The advantages of our judgment are: (1) the net interest margin remains resilient; (2) the growth of non-interest income (especially the net income of wealth management fees) is strong. In terms of net interest margin, the net interest margin totaled 2.48 per cent in the first three quarters, only narrowing 1BP compared with the whole of 2020, and we expect the net interest margin to remain at 2.48 per cent for the whole of 2021. Looking ahead to 2022, we propose to focus on deposit costs, as the dividend from the reform of the deposit pricing mechanism will be reflected for the first time in 2022 and the net interest margin is expected to remain stable. China Merchants Bank has advantages in deposit pricing management, and the price of large certificates of deposit issued in the second half of 2021 has fallen.
Continue to focus on high growth in wealth management. China Merchants Bank's non-interest net income for the whole of 2021 increased by 20.73% compared with the same period last year, of which the net income from handling fees is expected to remain the main driving force (19.69% year-on-year growth in the first three quarters). The strong performance of middle income mainly benefited from the wealth management business. China Merchants Bank's retail AUM reached 10.37 trillion yuan at the end of September 2021. Based on the huge customer base accumulation and AUM accumulation, the wealth management competitiveness is obviously ahead of the industry.
Deposit growth accelerated in the fourth quarter compared with the previous quarter. At the end of 2021, China Merchants Bank's deposits increased by 12.77% compared with the beginning of the period, expanding at a high speed for two consecutive years, of which 2021Q4 grew by 5.57% in a single quarter compared with the previous quarter. The fourth quarter is considered as the off-season for deposit collection, and the deposit growth rate is very eye-catching. We judge that the deposit growth benefits from the huge wealth management AUM precipitation, and the proportion of demand deposits is expected to further increase, which is also China Merchants Bank's core competitiveness at the balance sheet level. Loan 2021Q4 grew by 1.25% quarter-on-quarter, in line with expectations in an environment of weak economic demand.
Asset quality remains historically optimal. At the end of 2021, China Merchants Bank's defect rate dropped to 0.91%, the month-on-month 0.02pct continued to decline, the provision coverage rate remained stable at 441.34%, and the asset quality was excellent. Affected by the risk exposure of some real estate enterprises, the default rate of public real estate loans at the end of 2021Q3 is from + 1.06pct to 1.29% at the end of 2020, but it is still lower than the overall bad rate of public loans 0.18pct, and the asset quality of real estate to public business can be controlled. Although there is pressure in the external economic environment and residents' income fluctuates to a certain extent, China Merchants Bank's customer base is excellent, and the level of asset quality has been confirmed for a long time. We are optimistic about the future trend of its asset quality.
Investment suggestion: China Merchants Bank has strong performance stability and excellent asset quality. at the same time, the market still expects strong wealth management business to drive mid-income growth in 2022, and the wealth management sector has growth attributes. It is recommended to focus on retail AUM and mid-income growth. We expect China Merchants Bank's net profit in 2022 and 2023 to increase by 17.13% and 17.24% respectively over the same period last year. Based on the closing price on 2021-01-14, A-share PB is 1.46X and H-share PB is 1.54X in 2022. Recently, A-share price adjustment and discount compared with H-share, the investment value is more prominent, maintaining the "buy" rating.
Risk hint
1. The net interest margin continues to narrow.
2. The quality of assets has obviously deteriorated.
3. The demand for credit financing remains in the doldrums.