[ET Net News Agency, 22 June 2018] Morgan Stanley continues to believe that financial
cleanup will support gradual net interest margin (NIM) expansion and reduce long-term
risks for banks.
The research house does not see a major rebound in NPL formation despite rising bond
defaults, considering healthy profit growth and EBIT interest cover at major industrial
firms. While each bond default could be sizeable, it believes the cumulative NPLs
(non-performing loans) from bond defaults will not offset the likely lower NPL formation
from the industrial sector. It expects rational industrial capacity expansion to reduce
the negative impact on corporate profitability and credit quality risks from moderation in
macroeconomic growth.
However, rising trade tensions have increased market risks and could limit near-term
upside. The research house cutting its H-share price targets by 12% on average.
Morgan Stanley believes investors may require more evidence of a smooth cleanup process
in the banking industry. In light of the higher risks, it raises beta estimates across the
board by 0.1x to 1.05-1.5x for banks under coverage and cuts H-share price targets by 12%
on average, anticipating higher market volatility.
Summary of price target changes:
Banks TP (New) TP (Old) Change
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ICBC (01398) 8.30 9.20 -10%
CCB (00939) 10.30 11.90 -13%
BOC (03988) 5.60 6.40 -13%
ABC (01288) 5.60 6.50 -14%
PSBC (01658) 6.70 7.10 -6%
BoCom (03328) 7.10 7.80 -9%
CMB (03968) 34.30 38.00 -10%
CITIC (00998) 7.00 7.50 -7%
Minsheng (01988) 10.10 11.20 -10%
Everbright (06818) 4.40 4.90 -10%
CRCB (03618) 7.10 9.80 -28%
BOCQ (01963) 7.80 9.70 -20%
Huishang (03698) 3.90 4.55 -14%
(HL)