Citi has released a research report stating that CITIC BANK (00998) delivered solid third-quarter results, supported by improved cost efficiency, with its profit growth trend outpacing management guidance. The bank maintains a "Buy" rating with a target price of HK$9.78.
According to the report, CITIC BANK's pre-provision operating profit for the first nine months rose 7.2% year-on-year to RMB 117.7 billion, while net profit grew 3.6% year-on-year to RMB 55.3 billion, equivalent to 76% of the market's full-year 2026 forecast. Third-quarter pre-provision operating profit increased 10.4% year-on-year (compared with 4.7% growth in the second quarter), driven by strong trading gains from a low base and improved cost efficiency. Third-quarter net profit rose 4.6% year-on-year (compared with 3.2% growth in the second quarter), with the slower pace mainly due to higher credit costs. The third-quarter return on assets remained flat year-on-year while return on equity fell 8 basis points to 0.68% and 9.4%, respectively.
On the positive side, the report noted that third-quarter loan growth was resilient, down 0.8% quarter-on-quarter but up 3.7% year-on-year. Deposits rose 1.3% quarter-on-quarter and 4.3% year-on-year, with the loan-to-deposit ratio falling 1.9 percentage points quarter-on-quarter to 93.3%. Third-quarter trading gains surged 56.9% year-on-year, accounting for 13.4% of revenue. The cost-to-income ratio dropped 4.2 percentage points year-on-year to 29.4%, with operating expenses down 9.2% year-on-year.
On the negative side, the bank estimated that the net interest margin fell 7 basis points quarter-on-quarter to 1.56%. Third-quarter fee income declined 6.4% year-on-year. The non-performing loan ratio rose 0.1 basis points quarter-on-quarter to 1.15%, with credit costs at 1.19% (up 14 basis points year-on-year) and the non-performing loan provision coverage ratio at 201.9%.
The bank believes that third-quarter pre-provision operating profit growth exceeded its expectations, while profit growth was broadly in line with market consensus. Looking ahead, the bank sees high visibility for CITIC BANK to outperform management's guidance of approximately 3% profit growth for 2026 (up 3.6% year-on-year in the first nine months). In addition, a potential listing of Yangtze Memory Technologies in the fourth quarter of 2026 could provide additional upside to earnings forecasts, given that CITIC BANK holds approximately 4% to 5% pre-IPO equity.
Comments