China Industrial Profits Rise Modestly in May

The National Bureau of Statistics announced that from January to May, the total profits of industrial enterprises above the designated size reached RMB2.8 trillion, up 3.4% YoY, an increase of 0.9 percentage points narrower than that in January to April. In May, the total profits of industrial enterprises above the designated size increased by 0.7% YoY, down 3.3 ppts compared to April, achieving growth for 2 consecutive months. From January to May, among industrial enterprises above the designated size, state-holding enterprises realized a total profit of RMB944 billion, a YoY decrease of 2.4%; share based enterprises realized a total profit of RMB2.1 trillion, up by 1.0%; enterprises funded by foreign investors and investors from Hong Kong, Macao and Taiwan realized a total profit of RMB683 billion, up by 12.6%; private enterprises realized a total profit of RMB733 billion, up by 7.6%.

From January to May, the mining industry realized a total profit of RMB502 billion, a YoY decrease of 16.2%. The manufacturing industry realized a total profit of RMB1.9 trillion, up by 6.3%. The production and supply of electricity, thermal power, gas and water realized a total profit of RMB323 billion, up by 29.5%. In terms of the Hong Kong stock market, the Hang Seng Index may lack upward momentum in the near term. It is expected to fluctuate between 16,900-17,900 points.

In terms of industry, Utilities and bank sectors outperformed the market, reflecting conservative capital flows. Investors can pay attention to related high-dividend stocks with stable performance.

ICBC (1398.HK)’s revenue amounted to RMB 210.1 billion in 1Q24, down 3.80% YoY. Net interest income stood at RMB 161.4 billion, down 4.16% YoY, mainly due to the mixed effects of steady growth in interest-earning assets and decrease in NIM. As ICBC strengthened its financial support to the real economy and small and medium sized enterprises, its NIM declined in 1Q24. Its NIM of interest-earning assets was 1.48% in 1Q24, down 13bps from 2023. Non-interest income came in at RMB 48.7 billion, down 2.57% YoY.

Asset quality was solid in 1Q24. Its NPL ratio stood at 1.36% at end-March 2024, unchanged from 1.36% at end-December 2023. ICBC maintained strict NPL recognition and its allowance to NPLs ratio increased slightly in 1Q24. Its allowance to NPLs reached 216.3% at end-March 2024, against 214% at end-December 2023. What’s more, ICBC’s dividends yield was attractive. A total dividend of RMB0.3 share was declared in FY23, with a yield of 7%. It is recommended to buy at HK$4.50, target at HK$5.25, and stop loss at HK$4.30.

Bank of China (3988.HK)’s revenue in 1Q24 amounted to RMB161 billion, a YoY decrease of 3.00%. Net interest margin edged down 3bp QoQ to 1.44% in 1Q24, while BOCHK’s NIM fell 7bp QoQ in 1Q, along with the lower HIBOR. Net interest income stood at RMB112.7 billion, a YoY decrease of 3.94%. Non-interest income was RMB48.3 billion, a YoY decrease of 1.14%.

In the first quarter of 2024, loan growth was solid, with a QoQ increase of 4.6% and a YoY increase of 12.4%, driven by decent domestic loans. Domestic RMB loans rose 5.3% QoQ and 16.2% YoY. Of which, corporate loans/retail loans increased by 6%/1.7% QoQ. Deposit growth was stronger, up 5.2% QoQ and 10% YoY. Domestic RMB deposits rose by 6.4% QoQ and 14.2% YoY. Bank of China offered an attractive dividend yield. The total dividend in FY23 was RMB0.2364 per share, with a payout ratio of 54%, and the yield was about 6.6%. It is recommended to buy at HK$3.75, target at HK$4.35, and stop loss at HK$3.60.