China Construction Bank Earnings: Revenue Momentum Remains Weak, but Expected

China Construction Bank’s 601939 first-quarter total revenue and net profit increased 1% and 0.3% year on year, respectively. Total revenue growth was in line, but net profit growth slightly missed our expectations as the bank kept provision levels prudent despite stable credit quality and an improving macroeconomic outlook. As results were largely in line, we retain our fair value estimate at CNY 6 per A-share and HKD 6.20 per H-share. Like its state-owned peers, CCB is undervalued, trading at a historically low 0.4 times 2023 price/book value and over 8% dividend yield. We currently have a preference for Agricultural Bank of China and China Construction Bank, if among the state-owned banks; and for China Merchants Bank and Ping An Bank, as we anticipate fee income growth to strengthen in the second half of 2023.

CCB has room to boost its bottom line by easing general provision. Credit impairment charge was flattish year on year, but the provision coverage ratio edged up 15 basis points to 241.68% from end-2022. CCB noted the property developer nonperforming loan ratio was steady from end-2022′s level and NPL formation rate trended down in the first quarter. Though industrywide property credit quality will remain pressured—as more property bonds are expected to reach maturity in the first three quarters of 2023—we believe CCB’s property credit risks are manageable, as over 90% of its property borrowers are high-credit-rating customers, with property NPL ratios far below the industry level.