China Minsheng Banking Corp's 1Q15 net profit climbs 5.5% to RMB13.4bn

This and other results aligned with expectations.

China Minsheng Banking Corp.'s 1Q15 results were largely in line with Barclays' expectations, and that its fee income growth and cost controls were strong, but bad-debt charges rose.

According to a research note from Barclays, further, it will raise its 12-month price target by 27% to HK$12.30 from HK$9.70 to reflect Barclays' now lower cost of equity assumption.

Barclays also sees lower asset quality risk after the benchmark interest rate/RRR cuts and ongoing local government debt reforms.

However, Minsheng has a weaker-than-peer capital adequacy position and future management changes and long-term strategic development remain uncertain.

Here's more from Barclays:

Decent underlying profit growth: Minsheng reported 1Q15 net profit of RMB13.4bn, up 5.5% y/y and largely in line with our expectations.

Pre-provision operating profits grew by 18% y/y in 1Q15, primarily driven by fast fee income growth (+38% y/y) and good control of costs (+11% y/y), but profit growth was slower at 5.5% y/y due to an increase in impairment charges (+74% y/y). The margin contracted by 25bps y/y to 2.37%.

Slower pace of increase for NPL ratio: The NPL ratio rose by 5bps q/q to 1.22%, slowing down from a 13bps increase in 4Q14. Credit cost was 1.38% in 1Q15, up 47bps y/y but down 41bps q/q.

The loan loss coverage declined by only 1ppts to 181% at end-1Q15. Our economics team expects the economy to rebound sequentially in 3Q15 (click here).

No deposit growth: Minsheng's deposit base was largely flat q/q (+0.6%) at RMB 24.5bn, as growth in retail deposits (9% q/q) was offset by a decline in corporate deposits.

In contrast, loans grew by 4.1% q/q in 1Q15, likely driven by loans to mid-size and large corporations as retail loans grew by only 2.2% q/q (among which micro- and small-size enterprise loans have remained largely flat since 4Q13, indicating the bank's smaller risk appetite for the SME sector).