Company Introduction

ICBC was founded in 1984, which is the largest listed bank in China. ICBC was restructured to a joint-stock limited company and listed on both A+H Shares on 27 Oct 2006. By the end of 2012, ICBC was the largest bank all over the world in terms of market capitalization, customer deposits and profitability. The Bank owns obvious scale advantages, and currently records 16,648 domestic institutions, 239 overseas institutions and over 1,669 correspondent banks worldwide with 4.11 million corporate banking customers and 282 million personal banking customers.

Summary

-According to 1Q2013 report of ICBC (or the Group), by the end of March, net profits achieved to RMB68.813 billion with the year-on-year growth rate of 12.08%, equivalent to the EPS of RMB0.20;

-The Group's total assets increased by 4.65% to RMB18.36 trillion compared to the end of 2012 with stable scale advantages, equivalent to the BVPS of RMB3.42, increased by 6.21%;

-ICBC's profit growth met our expectation based on 1Q report, but we cut the profit forecast in 2013, and estimate the EPS would reach to RMB0.75;

-However, the asset quality of ICBC started to deteriorate caused by the large expansion of loans in recent years. The NPL ratio increased by 0.02ppts to 0.87% with the amount of RMB80.237 billion, up RMB56.62. Meanwhile, coverage ratio went down 7.43ppts to 288.12%;

-In recent days, several bad news came into the market, such as the U.S. will stop QE in future, and the significant decrease of liquidity of Chinese banks, which caused the market's expectation to deteriorate for China's banking sector and the economic environment. However, the PBOC did not announce measures to boost the market immediately as usual, therefore the capital market went down sharply, and the Shibor increased significant and recorded the new high. We believe the market turmoil this time is the warning for the banks` large expansion of loans and the lack of the control in liquidity management and risks in the past few years, which is good for restraining the loans bubble, and will favor the development of the industry in the middle and long term. Therefore, now the deterioration of the market is temporary, and the market will be better gradually. In this process, large financial institutions, especially for state-owned banks, will play the key role to increase the liquidity and smooth the market risks;

-In all, ICBC showed the stable operating performance and we still have confidence in the development of the Group. However, considering current market risks, we believe the growth of the bank's loans and interested incomes will decrease in future, which bring the negative impact to the bank's performance, and therefore we hold a cautious view for the share price in the short term. We cut ICBC's 12-m target price to HK$5.10 based on 10% discount of the value from 3-stage DDM, around 16% higher than the latest closing price, equivalent to 8.0xP/E and 1.6XP/B in 2014 respectively. Maintain ICBC to Accumulate.

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