Citi has released a research report stating that CITIC Bank (00998) delivered solid third-quarter results, benefiting from improved cost efficiency, with its profit growth trend outpacing management guidance. The bank maintained a "Buy" rating with a target price of HK$9.78.
The report noted that 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 full-year 2026 market consensus.
In the third quarter, pre-provision operating profit increased 10.4% year-on-year, compared to 4.7% growth in the second quarter, driven by strong trading gains from a low base and improved cost efficiency. Third-quarter net profit grew 4.6% year-on-year, compared to 3.2% growth in the second quarter, with the slower pace mainly attributed to higher credit costs. The third-quarter return on assets was flat year-on-year while return on equity fell 8 basis points to 9.4%, with ROA at 0.68%.
On the positive side, the report highlighted resilient loan growth in the third quarter, 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, while the loan-to-deposit ratio fell 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 declining 9.2% year-on-year.
On the negative side, Citi 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. The non-performing loan provision coverage ratio stood at 201.9%.
Citi 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 2026 profit growth guidance of approximately 3%, having already achieved 3.6% year-on-year growth in the first nine months. Additionally, a potential listing of Yangtze Memory Technologies in the fourth quarter of 2026 could provide additional earnings upgrade potential, given that CITIC Bank holds approximately 4% to 5% pre-IPO equity stake.
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