Nomura trimmed its target price for Agricultural Bank of China (ABC)(01288) to HK$4.14 from HK$4.6 and maintained its "buy" rating.
The research house raised the valuation discount rate to 13.5% from 12.5%, given rising macro uncertainties, while it largely maintained its FY2019-21 earnings forecasts.
Nomura said ABC trades at an attractive valuation of 0.6x FY2019 PB, with ROE at 12% and dividend yield at 6.4%. Meanwhile, the H-share implied NPL ratio is 8.9%, versus reported NPL at 1.4%.
It expects ABC to deliver earnings growth of 4.7% for FY2019 (previously 4.3%), driven by steady loan growth of 12%. At the same time, Nomura thinks ABC's NIM will be under pressure, given the weakening loan demand, and the adoption of a new loan pricing mechanism.
Nomura thinks ABC's asset quality will remain stable in 2H, as its NPL ratio decreases by 26bps h-h to 1.82%, and NPL coverage increases by 27pp to 280%. In addition, its exposure to high-risk sectors continues to shrink and the share of the retail business continues to increase.
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