Strong PPOP growth to offset higher provisions; Buy maintained. Ping An Bank (PAB) reported 9M15 NPAT of Rmb17.7bn, up 13.0% yoy,accounting for 81% of our 2015 full-year forecasts. Its 3Q15 NPAT ofRmb6.2bn (up 9.5% yoy) was mainly driven by robust PPOP growth of 31%yoy, offset by elevated credit costs of 234bps. We estimate the bank recordeda higher NPL formation rate of 313bps in 3Q15 (2Q15: 215bps), partly due totighter NPL classification during the quarter, as evidenced by falling specialmention loan balance and less overdue loans beyond 90 days as a percentageof NPL balance. Reflecting strong growth momentum on product innovationand group synergy to offset credit risk, we maintain our Buy rating on PAB. 3Q15 – running the numbers. PAB’s NIM expanded by 16bps yoy (or up 7bps qoq) to 2.76%, together withAIEA up 16% yoy, leading to a strong growth in net interest income of 23%yoy. Its NIM expansion was mainly due to 1) falling cost in deposits andcertificates of deposits issued on policy easing; 2) rising portion of higheryieldingpersonal loans, e.g. Dai Dai Ping An. Fee income growth softened to29% yoy in 3Q15 (2Q15: up 83% yoy) due mainly to stock market consolidationand seasonality of advisory fee income. With 3Q15 Opex growing only by12.8% yoy against 23.4% yoy for total revenue, its cost-to-income ratio dippedby 3.6% yoy to 38.8%. With loan growth of 22% yoy exceeding deposit growthof 14% yoy, PAB’s LDR rose by 4.3% yoy to 70%. Rising NPL formation on tighter bad loan classification – a positive sign. Despite a stable NPL ratio at 1.34% as of 3Q15, if incorporating the gross NPLwrite-off of Rmb8.9bn, we estimate the bank recorded a higher gross NPLformation rate of 313bps, compared with 215bps in 2Q15. We believe PABmay have started to strengthen NPL classification, as we note its SML ratiohas dropped by 16bps qoq to 4.30% in 3Q15. Meanwhile, the bank’s overduebalance fell by 9% qoq to 4.56% of loan book (down 54bps qoq). As a result,overdue loans beyond 90 days accounted for 235% of NPLs, down from 270%in 2Q15. PAB’s NPLs are more concentrated in retail loans with an NPL ratio of2.61%, while corporate loan book only recorded an NPL ratio of 0.64%. Withcredit costs of 234bps in 3Q15 (3Q14: 168bps), NPL coverage and provision-toloanratio dropped to 167% and 2.24%, respectively. Strengthened capital positions, with strong liquidity ratio. PAB’s CET-1 ratio, tier-1 ratio and total CAR improved to 9.14%, 9.14% and11.08% as of 3Q15, up by 29bps, 29bps and 12bos qoq, respectively. The bankreported liquidity ratio of 67% and liquidity coverage ratio of 125% at Sept-end,well above the regulatory floor of 25% and 70%. During 9M15, PAB hasobtained 3.03mn customers by migration through intra-group cross-selling,which contributed 49% of total new customers and 78% of deposit growth.

Lowering TP by 16.7% on stock dividendsWe cut Bank of Beijing (BOBJ)'s target price by 16.6% to Rmb12.00(Rmb14.39 prior) to reflect the bank's stock dividends of two bonus shares perevery 10 shares with the ex-dividend date of 17 July 2015, which increase itsnumber of outstanding shares from 10,560mn to 12,672mn. We do not expectsignificant changes on the bank's fundamentals. Maintain Buy and top pick among A-share banksWe remain our Buy rating on the stock and mark it our top pick among A-sharebanks, given its solid MSE lending and deposit franchise in home market,prudent risk management and initiatives in internet finance (cooperation withXiaomi and Tencent). We value BOBJ based on full growth 3-stage Gordon-Growth Model (GGM) with a target price of Rmb12.00 (1.4x 2015E P/B),implying 34% upside. On our estimates, BOBJ is trading at 1.0x 2015E P/B and6.5x 2015E P/E.

Cooperation with Xiaomi to tap 25-30mn potential customers; Buy。 BOBJ announced after market close today that it has entered into acooperative contract with Beijing Xiaomi Technology Co (Xiaomi), a leadingmobile internet company in China, to cooperate in mobile payment, lendingand distribution of WMPs. While the direct earnings contribution in the shortterm should be marginal (only 3% of FY14E NPAT), we believe the cooperationshould potentially help the bank to tap a broader customer base (10mn existingretail customers at BOBJ, compared to 25-30mn existing smartphone users atXiaomi) and to reduce operating cost. With its lowest exposure to risky nonstandardizedassets (5.4% of total assets vs. sectors’ 19.2%) and solid depositfranchise in Beijing area, we believe the bank’s fundamental remains strongand has not been fully priced in the current valuation of 0.75x FY14E P/B. Maintain Buy and the top pick among A-share city commercial banks.。 Cooperation on mobile payment, lending and WMP distributionAccording to the statement released by BOBJ, it will work jointly with Xiaomion: 1) promotion of standardized personal loan products; 2) distribution ofWMPs, insurance products and money market funds; 3) mobile paymentbased on Near Field Communication (NFC) function. Leveraged on Xiaomi’sfast-growing customer base (18.7mn smartphones sold in 2013 vs.7.2mn in2012), the bank should be able to generate more cross-selling opportunities. Marginal earnings impact from the cooperation in the short term。 In the short term, we see limited direct earnings impact. Firstly, if we assume1% of Xiaomi’s smartphone uses converted to customers of BOBJ’sconsumption loan products (average loan size of Rmb50k and loan yield at9%), the accretion to FY14E earnings should be around 3%. Secondly, webelieve the bank’s cooperation with Xiaomi should be nonexclusive, asevidenced by past experiences where Alibaba and Tencent had cooperatedwith multiple banks, suggesting potential margin squeeze due to competitions.