Agricultural Bank of China’s 2022 Net Profits Growth Strongest Among Peers; NIM Contraction Missed

Agricultural Bank of China 601288, or ABC, posted the strongest growth, at 7.4%, in full-year 2022 net profits among the big four SOE banks, supported by robust loan growth and resilient fee income. In contrast to the year-on-year decline in revenue for ICBC and CCB, ABC’s revenue edged up 0.7% on the 2.1% and 1.2% respective growths in net interest income and fee income. Loans grew at a faster-than-peer pace of 15% in 2022 from the 2021 level, underscoring its inherent advantage in rural financing and policy tailwinds brought by the government’s rural revitalization initiative.

Fee income growth was resilient compared with the year-on-year decline for peers, driven by the 2% and 3% respective growths in wealth management and bank card-related income. We believe this indicates ABC’s more diversified customer base that was less impacted by the economic downturn and COVID-19 lockdowns in major cities in 2022. Despite the strong net profit growth, the 22-basis-point year-on-year contraction in net interest margin, or NIM, missed our expectation for a mid-teen-digits decline. Compared with ICBC’s 19-basis-point decline in NIM, we believe ABC’s NIM pressures were more from the asset yield. Asset yield and average loan rate fell 13 and 14 basis points, respectively, from 2021. We suspect this was partly due to the abrupt slowdown in mortgage loan growth, forcing the bank to allocate more credits to low-yield corporate loans.

With minimal change to our assumptions, we keep our fair value estimates 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 attractive 8.6% dividend yield.