Ping An's point of view:
We are blessed with resource endowments, and major banks are leading the way in steady management. The Industrial and Commercial Bank, which originated from the central bank's functional department, has gone through the development of three major periods of national specialized banks, state-owned commercial banks, and stock reform and listing, to become the largest state-owned commercial bank with the largest domestic assets. The continuous improvement of the diversified financial layout, well-structured channel network layout design, and sound business strategy are all the keys to the continuous development and growth of ICBC since its establishment. By the end of the 3rd quarter of 2023, ICBC's assets reached 44.5 trillion yuan, continuing to lead comparable industries.
The customer base is consolidated, and comprehensive management capabilities are outstanding. Looking at the past few years, against the backdrop of increased uncertainty in the domestic economic environment, major banks are playing a pivotal role in the industry, and their market share has bucked the trend. We believe it mainly relies on their more solid customer base and resource endowment advantages. As the largest bank in China, ICBC is a typical example. ICBC has long been deeply involved in economically developed regions, bringing it a stable and rich customer base. By the end of half of 2023, ICBC's retail customers had exceeded 700 million, and the retail AUM scale and average AUM per household ranked first among major state-owned banks. ICBC's solid customer base allows it to obtain lower debt costs that are superior to those of its peers. In the context of the industry facing an “asset shortage,” there is more room for adjustment of the asset allocation, further guaranteeing its steady operation. In addition, ICBC's integrated management capabilities are also part of its differentiated advantages. The operating performance of its diverse subsidiaries also ranks among the best in various industry segments. Although the bank's main intermediary business sources, including wealth management, credit cards, investment banks, etc., have slowed in growth in the past few years due to changes in the market environment and regulatory policies, we believe that from a long-term perspective, it is still the key to bank transformation and development and improving profit quality. The advantages of ICBC's integrated management are expected to give it greater synergetic value in the future. Currently, ICBC is actively promoting the “GBC+” strategic transformation. The release of transformation dividends is expected to continue to enhance its business collaboration capabilities, customer stickiness, and customer value mining capabilities, and deserves more attention.
The downward pressure on profits is manageable, and the attractiveness of steady dividends has increased. Due to the narrowing of interest spreads, the profitability of the domestic banking industry has continued to face downward pressure in recent years. Although ICBC's ROE level has declined, it has maintained a leading position comparable to its peers. The weighted average ROE in 2022 was 11.43%, which is among the top listed banks. In terms of capital level, ICBC is also at the top of the comparable industry. The capital adequacy ratio reached 18.8% at the end of the 3rd quarter of '23. ICBC's dividend level is more capable of maintaining stability when capital pressure is relatively low. The high dividend attributes are expected to continue, and the dividend allocation value is prominent.
Investment advice: Steady management, outstanding high dividend attributes. As the largest commercial bank in China, ICBC's solid customer base, outstanding cost advantages, stable asset quality, and continuous improvement of comprehensive management capabilities are the foundation for crossing the cycle. With the gradual deepening of its “GBC+” strategy, the increase in internal capital circulation and customer stickiness is expected to provide it with stable business needs. In the current context where risk-free interest rates continue to decline, ICBC's fixed income value is also worth paying attention to. As of March 25, 2024, ICBC's dividend rate for the past 12 months was 5.74%. Compared to risk-free interest rates, the dividend premium rate is at an all-time high, and the dividend allocation value is worth paying attention to. In summary, we expect that the company's EPS for 23-25 will be 1.03/1.04/1.08 yuan, respectively, with profit corresponding to a year-on-year growth rate of 1.4%/1.3%/3.5%. On March 25, 2024, the company's A-share stock price will correspond to the company's 23-25 PB of 0.55x/0.51x/0.48x, respectively, for the first time coverage and give a “recommended” rating.
Risk warning: 1) The economic downturn has caused pressure on asset quality to exceed expectations; 2) net interest spreads have narrowed beyond expectations due to declining interest rates; 3) Financial policy regulation risks.