Agricultural Bank of China Earnings: Asset Growth Continues To Lead; Remains Our Preferred SOE Bank

Agricultural Bank of China’s first-quarter results were largely within our expectation. We continue to like ABC and China Construction Bank among the state-owned banks, and are heartened that loans and fee income growth remain relatively robust for these two banks while net interest margin trend is in line with peers. ABC’s total loans increased 7% from end-2022, outpacing the 3%-6% growths of its peers in our coverage. We keep our fair value estimate at CNY 3.30 per A-share and HKD 3.50 per H-share. The stock is undervalued, trading at a historically low 0.4 times 2023 price/book value and an over 8% dividend yield. Notably, NIM contracted 39 basis points year on year but only dropped 3 basis points quarter on quarter. We expect pressure on ABC's NIM to subside as the base gets lower in the remaining quarters of 2023. This should help boost its profitability in the second half.