China Merchants Bank 3968

[winston]

Bank forced to tap funds by Katherine Ng, The Standard HK

China Merchants Bank (3968) admits it has to raise funds because its purchase of Wing Lung Bank (0096) last year reduced its capital adequacy ratio, putting pressure on it to replenish its capital base.

Chairman Qin Xiao said yesterday the mainland's fifth-largest lender will raise funds from the stock market either by issuing new shares or through a placement. He did not elaborate.

Qin added the bank's net interest margin faces a squeeze that will offset the robust loan growth this year and thereby stifle its net interest income.

The Shenzhen-based lender said buying Wing Lung Bank dragged down its tier one capital adequacy ratio to 6.56 percent at the end of 2008.

Wing Lung was the only local bank to end in the red last year with a net loss of HK$816.15 million, compared with a gain of HK$1.37 billion a year earlier.

China Merchants Bank last year wrote off 9.27 billion yuan (HK$10.54 billion) in goodwill value, representing about 54.58 percent of the acquisition cost of HK$19.3 billion for Wing Lung Bank. It will write off another 200 million yuan this year.

But Zhu Qi, executive vice president of China Merchants Bank and president of Wing Lung Bank, expects the local lender to turn around this year and record strong earnings and expand its market in three years.

CLSA maintained a "sell" on the lender and revised down its target price to HK$8.83, a 37 percent discount to yesterday's closing price of HK$14.10.

Morgan Stanley downgraded the stock to "equal weight" and cut its target price to HK$15.53.

[winston]

UPDATE 1-China Merchants Bank plans up to $2.6 bln rights issue

SHANGHAI, Aug 14 (Reuters) - China Merchants Bank Co (600036.SS) (3968.HK) said on Friday it would raise 15 billion to 18 billion yuan ($2.20-2.63 billion) via a rights issue of Hong Kong-listed H shares and Shanghai-listed A shares to boost its capital adequacy ratio.

China's sixth-largest lender said it would issue no more than two shares for each 10 shares held by existing A-share and H-share holders at price to be a discount to market trading prices.

The A-shares closed at 17.68 yuan on Thursday and H-shares ended at HK$17.72 in Hong Kong.

The A-share rights issue plan is subject to regulatory approval and the company will seek shareholders approval in a meeting to be held on Oct 9.

Investment banking sources told Reuters last month that the bank planned a rights offering by the end of the year as corporate capital raising in the Hong Kong and mainland stock markets picks up steam with the rising equity markets.

[winston]

They have the best service for Retail Banking ..

China Merchants Bank Quarterly Profit Drops 41% on Loan Margin

Aug. 29 (Bloomberg) -- China Merchants Bank Co., the nation’s fifth-biggest by market value, posted its third consecutive quarter of declining profits as loan margins contracted and it set aside additional funds for loan defaults.

Net income fell 41 percent to 4.1 billion yuan ($600 million) in the second quarter, from 6.93 billion yuan a year earlier, based on figures released by the Shenzhen-based company today. That fell short of the 5.1 billion yuan average estimate of six analysts in a Bloomberg survey.

President Ma Weihua, who introduced the nation’s first credit card and helped boost profit sevenfold since 2004, faces more challenges during an economic slowdown because of the bank’s focus on loans to home buyers and smaller firms. The profit decline was the steepest among China’s six largest publicly traded banks.

The results reflect the biggest margin contraction among the six Hong Kong-listed Chinese banks and weaker fee income, Credit Suisse AG analysts Sherry Lin and Daisy Wu wrote in a report on Aug. 14.

“With the recent rebound in the Chinese property market and increasing signs of stabilization in the U.S. economy, we believe there is more upside risk to forward earnings estimates” for Merchants Bank, the analysts said.

Shares of Merchants Bank fell 1.5 percent to close at HK$17.44 in Hong Kong trading before earnings were released. The stock has gained 58 percent this year, compared with a 40 percent increase in the benchmark Hang Seng Index.

Half-Year Results

Second-quarter profit was derived by subtracting net income for the first quarter from the first-half figure reported to the Hong Kong stock exchange yesterday. In the first half, Merchants Bank’s profit fell 38 percent to 8.3 billion yuan.

Net interest income, or revenue from lending minus interest paid on deposits, fell 23 percent to 18.6 billion yuan in the first six months. Fee and commission income fell 1.2 percent to 4.04 billion yuan.

Chinese banks advanced a record $1.1 trillion of new loans in the first half, almost equivalent to India’s gross domestic product last year. A surge in credit supply and re-pricing of loans after the central bank’s five rate cuts in the final four months of last year eroded the profitability of that lending.

Merchants Bank’s net interest margin, a measure of lending profitability, narrowed to 2.14 percent, 137 basis points lower than a year earlier. A basis point is 0.01 percentage point.

The bank said earlier this month it plans to raise as much as 18 billion yuan in a rights offer to shore up capital that has been drained by acquisitions and credit expansion. Merchants Bank’s capital adequacy ratio fell to 10.63 percent as of June 30, the lowest among the Hong Kong-listed Chinese banks.

[winston]

They have the best service. Not vested. From Phillips:-


Risk

The period of economic recovery is longer than the expectation, the Group's intermediate business decreases due to the recession;
NIM remains at low level, and affects the increase of interest income;
CMB passed the plan to issue the new offering recently, which may dilute EPS in future.


Valuation

In all, we estimate the profits of CMB will maintain the negative growth due to a narrow of NIM and decrease of net interest income in 2009.

However, according to our analysis, we think the operating strategies of CMB are quite prudent, and own the stable ability of risk control. The Group's coverage ratio is much higher than the peers, and its NPL ratio decreases largely, which is helpful for CMB to improve the quality of assets.

We still hold an optimistic view on the Group's development in future due to the stable growth of CMB's retail banking business.

We estimate that net profit of CMB will be around RMB18.3 billion in 2009, decreasing by 13% yoy, and net profits would rebound obviously to RMB25.8 billion in 2010.

We maintain CMB on “Buy” rating, and its 12-month target price is HK$20.54, 18% higher than current price, corresponding to 19x EPS, and P/B 4X of 2009.

[winston]

Not vested.

=DJ UPDATE: China To Review Merchants Bank $3.2 Bln Share Sale Monday

(Adds China Merchants Bank's capital adequacy ratio, background on rights issue.)

SHANGHAI (Dow Jones)--China's securities regulator said it plans to review China Merchants Bank Corp.'s (3968.HK) planned CNY22 billion (US$3.2 billion) rights issue, which will help replenish the bank's capital after aggressive credit expansion last year, on Monday.

China's sixth-largest bank, like its peers on the mainland, has had to raise funds in the capital markets after the country's lenders issued a record CNY9.6 trillion new yuan loans last year. The massive lending has raised concerns about the long-term health of the domestic banking sector.

China Merchants Bank said in August it planned to raise as much as CNY22 billion by offering shareholders up to 2.5 shares for every 10 shares held to replenish its capital.

It had said a few days earlier it planned to raise up to CNY18 billion, but raised the amount after China's banking regulator said banks with a national presence must have a minimum core capital adequacy ratio of 7%, up from 4% previously.

The regulator also placed limits on lenders seeking funds from the sale of subordinated bonds, a popular way of boosting capital in China.

As of Sept. 30, China Merchants Bank had a capital adequacy ratio of 10.5%, down from 11.3% at the end of 2008, while its core capital adequacy ratio was almost flat at 6.6%.

China's banking regulator has raised the minimum capital adequacy ratio--the amount of capital banks must hold against their risky assets--to 10%, or higher for large lenders, from 8% since late 2008 when the global financial crisis deepened.

The regulator has also said banks need to give priority to boosting their core capital by retaining profits or issuing new shares before considering other fund-raising channels to boost their capital.

Source; Rose Yu, Dow Jones Newswires

[winston]

Not vested. From Phillips:-


Risk

Reduction of NIM causes interest incomes to decrease;
Larger pressure of capital due to decrease of CAR.


Valuation

In all, NIM of CMB rebound stably, its net interest incomes and retails banking business increase sharply. The quality of the Group's assets improves and the pressure of its capital is reducing after the Right Issue completed in 2010.

We still hold an optimistic view on the Group's performance in future and estimate that net profit of CMB would increase by 57% and 31% yoy in 2010 and 2011 respectively, equivalent to EPS of RMB1.36 and 1.78.

We still maintain CMB on “Buy” rating, increase its 12-month target price to HK$30.00, 36% higher than current price, corresponding to P/E14.9x, and P/B 3.5x of 2011 respectively, the valuation is quite reasonable.

[winston]

not vested

DJ MARKET TALK: China Merchants Bank Off 7.4%; Valuation High -SHKF

1153 [Dow Jones] China Merchants Bank (0939.HK) is down 7.4% at HK$15.66 following its quarterly results, likely due to selling pressure after its recent outperformance, says Daniel So, strategist at Sun Hung Kai Financial.

The stock is up 30.0% over the past six sessions, vs the HSI's 11.3% gain during the same period.

"Its slightly above-view quarterly results don't justify its relatively higher valuation." So says CMB is trading at about 2.1X historical P/B, vs its peers' range of about 1.3X-1.4X.

The lender's 3Q net profit rose 33% on-year to CNY9.79 billion, above the average CNY9.20 billion forecast based on six analysts polled by Dow Jones Newswires.

He expects the stock's early low of HK$15.52 to be an immediate support.

Source: Dow Jones Newswire

[winston]

Vested. They have the best service among the major banks...

=====================

Risks

1. Deterioration of asset quality, and the NPLs increase;
2. Larger volatility of the markets due to the effects of European debt crisis, and the share price decrease significantly.


Valuation

In all, NIM of CMB grew obviously, its net interest incomes continued to increase sharply, and the quality of assets improved consistently.

The capital pressures would reduce effectively if A+H Right Issue was completed successfully, and we still hold an optimistic view on the Group's performance in future and expect net profits of CMB would increase by 33% and 29% yoy in 2011 and 2012 respectively to RMB34.234 billion and 44.171 billion, equivalent to EPS of RMB1.59 and 1.68.

According to three-stage DDM, we estimate the intrinsic value of CMB would be HK$28 approximately, and we cut its 12-month target price to HK$22.45 due to current bearish market, which is 20% discount to its intrinsic value and 35% higher than its last closed price, corresponding to P/E10.9x and P/B 2.2x of 2012 respectively, the valuation is quite reasonable.

We still maintain CMB on “Buy” rating.

Source: Phillips

[winston]

not vested

China Merchants net up

China Merchants Bank Co (3968) said net profit last year rose 8.06 percent to 55.91 billion yuan, while non-performing loans jumped 52 percent to 27.92 billion yuan.

Net interest income reached 112 billion yuan, up 13.23 percent, and non-interest income jumped 59.41 percent to 54.53 billion yuan. But the net interest margin shrank to 2.52 from 2.82.

The sixth-largest lender in China declared a 6.70 yuan dividend for every 10 shares, with earnings per share reaching 2.22 yuan.

Chairman Li Jianhong said it planned 13 percent growth in proprietary loans.

Source: The Standard HK

[winston]

not vested

China Merchants net up

China Merchants Bank Co (3968) said net profit last year rose 8.06 percent to 55.91 billion yuan, while non-performing loans jumped 52 percent to 27.92 billion yuan.

Net interest income reached 112 billion yuan, up 13.23 percent, and non-interest income jumped 59.41 percent to 54.53 billion yuan. But the net interest margin shrank to 2.52 from 2.82.

The sixth-largest lender in China declared a 6.70 yuan dividend for every 10 shares, with earnings per share reaching 2.22 yuan.

Chairman Li Jianhong said it planned 13 percent growth in proprietary loans.

Source: The Standard HK