News。 On July 25 ICBC announced plans to issue Rmb80bn of perpetual andnoncumulative preferred shares, pending shareholder and regulatoryapprovals. Key features include: (1) Rmb45bn/Rmb35bn of preferred shareswill be issued in the onshore/offshore markets; (2) private placement ofonshore shares to less than 200 investors and offshore shares to qualifiedoffshore investors; (3) dividend yield for onshore/offshore shares would beset by the China govt bond yield/undetermined benchmark rate plus a fixedpremium to be set upon issuance. The yield would either remainunchanged or be modified once per every agreed-upon period; (4)mandatory conversion to common equity if ICBC’s core tier I CAR fallsbelow 5.125%, and/or if regulators deem ICBC cannot survive if conversiondoes not happen. The conversion price would be Rmb3.44 per share (0.8XFY14E P/B) for onshore and is currently undetermined for offshore. Analysis。 We calculate the preferred share issuance would help raise ICBC’s tier ICAR by c.0.5pp/0.4pp in FY15/16, from our existing estimates of core tier ICAR of 10.6%/10.7%. Further, assuming proceeds generating 4pp yieldsand two scenarios of 6%/9% div yields (based on current rates), our proformaanalysis suggests the issuance would have a limited impact oncurrent dividends to common shareholders (we estimate the preferredshare dividends would represent c.4.5%/6.8% of total FY15E dividends), as:(1) proceeds from the issuance would generate interest income, potentiallyraising EPS by c.0.8%/0.6% in 2015E/16E; (2) to keep our current 2015Eforecast of common share DPS unchanged, we estimate ICBC would onlyneed to raise its dividend payout ratio from the current 35% by 1.3-2.1pp. Implications。 We maintain our Buy rating on both ICBC H/A shares. Our estimates andtarget price are unchanged.

What surprised us Industrial Bank reported 9M13 NPAT of Rmb33.1 bn, up 26% yoy, or81%/78% of our/Wind consensus FY13E on better than expectedNII/fee/PPOP, despite a volatile 3Q13 that led to a qoq drop in NIM/NII. Keypositives: 1) 9M13 PPOP grew 26% yoy, accounting for 81% of our FY13. NII came in slightly above expectation at 76% of our FY13E, as interestearning assets recorded a solid growth of 23% yoy; 2) Net fees were up70% yoy driven by strong fees from bank cards, custodian and consultingservices. We expect the increasing revenue contribution from fee income(27% in 9M13 vs. 19% in 9M12) to continue as the bank’s managementindicated Industrial Bank is eyeing to develop more business that is lesscapital-incentive, such as providing asset custodian or other intermediaryservices. Key negatives: 1) 3Q13 NII declined 7% qoq as NIM shrank 23bpqoq, due to rising funding cost after the interbank rate surges in June. Management expects NIM to gradually recover in 4Q13 as the laggingasset yield prices upward; 2) NPLs rose modestly by 11% qoq to 0.63% oftotal loans in 3Q13, and we estimate new NPL formation rate of 36bp,including c.Rmb400 mn NPLs write-off in 3Q13 but excluding unclearamount of NPLs transferred out (vs. 44bp in 1H13), mainly on SME loans. What to do with the stock Retain Buy given the overall solid set of results in 3Q13. Our 12m BVPSbasedTP of Rmb14.73 and estimates are unchanged. Risks: macro hardlanding; overly aggressive growth in interbank and trust beneficiary rightsinvestment.

What surprised us ABC reported FY12 NPAT of Rmb145bn, up 19% yoy and 99%/100% ofour/Reuters consensus FY12 estimates. Revenue/PPOP were largely in-line,while slightly better than we expected NII/provisions offset weaker feesgrowth. Key positives: 1) 4Q12 NIM rose 6bp qoq, driving NII to grow by4%/6% qoq /yoy, due to strong growth in high-margin retail loans, 1.4pprise in L/D ratio and 1% decline in interbank assets qoq. 2) NPL ratiodeclined 1bp qoq in 4Q12 with a mild annualized net formation rate of10bp in 2H12. Overdue loans (over 1 day) rose modestly hoh by RMB3bnwith a net formation rate of 16bp vs. 48bp in 1H12; 3) Balance sheet furtherstrengthened as LLR/ total loan ratio was up 13bp to 4.35% vs. 4.1% inFY11, vs. 1.3%/1.6% NPL ratios in FY12/FY11; 4) Tier I CAR/total CARreached 9.7%/12.6% as ABC decreased its off-balance sheet exposure by8%/12% hoh/yoy. Management emphasized during the analyst briefingthat ABC does not have capital raising pressure in the mid-term, and futurecapital need will be met mainly through internal capital generation (bookvalue grew 13% yoy excluding dividend) and potential issuance of noncoretier I capital instruments. Key negatives: Fees declined 13% qoq in4Q12 and FY12 fees was 5% lower than our estimate, mainly reflectingweaker agency and advisory fees, partly given the decline in off-balancesheet items as part of de-risking measures. What to do with the stock We retain our Buy ratings for ABC H/A-shares given its strong franchise,balance sheet, above-peer earnings growth and attractive 6% dividendyield. Our estimates and 12m TPs of HK$4.6/Rmb3.7 (on 1.4x ‘13E adjustedP/B) are unchanged. Risks: worse-than-expected GDP; earnings misses.

Ping An announced that its employee beneficial ownership program, whichholds 681mn Ping An A shares (8.6% of total shares and 14.2% of A shares)that were collectively owned by management, current and previousemployees via three employee shareholding companies (i.e. “New HorseDevelopment”, “Jingao Industrial” and “Jiangnan Industrial”), informedPing An that they transferred their 60% interest to four strategic investors. The average price is based on the 20 trading days prior to the signing ofthe equity transfer agreements. They also reached a preliminary intent withthe strategic investors regarding the transfer of their remaining sharestake. Ping An also stated on their website that the new investors are long termstrategic investors and will uphold the previous commitment of the threeshareholding companies that the stake sales per year, if any, will be morethan 30% of the beginning holdings as of February 2010. Analysis。 1) We believe A-share investors could have concerns on the overhangsfrom this stake disposal. It remains to be seen if these four new strategicinvestors will become long-term shareholders. 2) Upon completion of the transfer, the management team would have soldtheir current stock holdings. A key question is how Ping An ensures themanagement team has sufficient management incentives without a sharestake. Implications。 We retain our CL-Buy rating on Ping An A for its solid management andattractive valuation at 2012E 1.16X P/EV and 2.5X NBM, vs. sector averageof 1.44X/6.2X. Key risks: macroeconomic hard landing, worse-thanexpectedA-share performance, and FYP/NBV growth.

We reiterate our CL Buy and maintain our 12m TP of Rmb20.40, based on1.7X 12E P/B, on 1) likely above-consensus 2012 earnings given healthy feeincome momentum, NII and deposits growth, and strong interbankbusiness, 2) removed capital raising overhang, and 3) 21% 2012E P/Ediscount vs. A-share peers. Risks include higher-than-expected provisions.

Implications Given the solid FY11 results, we maintain our CL-Buy/Buy on Ping An A /Hshares, with 12m target prices of Rmb58.2/ HK$68.9 respectively, on 1.81X2012E EV. Key risks: Macro economic hard landing, worse-than-expectedA-share performance and FYP/NBV growth.

CMB reported 1H11 NPAT of Rmb18.6bn (+41% yoy), 1% above our estimateand accounting for 55%/56% of our/Reuters consensus FY11 estimates onbetter-than-expected fees, PPOP, and Rmb892mn trading income from transferbills. Key positives: 1) 6% qoq NII growth in 2Q11 given 4.8% earnings assetgrowth and 3bp NIM gain; 2) 1H11 net fees grew 53% yoy and 36% hoh onstrong credit commitment, agency/wealth mgmt, and investment bankingbusinesses. Non-interest income rose 13% qoq and 56% yoy partly due to aninterest spread from selling bills amid spiking interbank rates during 2Q11; assuch, 1H11 PPOP were 2% above our estimate (excluding this, we would havebeen in line). Asset quality: NPL balance/ratio dropped 2%/7bp hoh, but loansoverdue more than 1 day/SML rose 19%/10% hoh off a low base, and overdueloan ratio remained flat at 1.5%. LLR/loans rose slightly to 2.13% from 2.05% inFY10. Negatives: 1) 1H11 expense grew 32% yoy mainly due to staff costs,bringing CIR to 39%, or 2% higher than our 1H11 estimate; 2) RWA grew a bitfaster than loans, at 15% hoh (partly due to 45% hoh growth of acceptance),causing tier 1 CAR to drop 23bp to 7.8%. We estimate that after the rightsissuance of maximum Rmb35bn announced on July 18, pro-forma core tier ICAR would rise to 9.5% by 2011E. What to do with the stock。 We view CMB’s 1H11 results as solid, and see CMB A-shares as a GARP ideawith 6.5X 2012E P/E and 1.3X 2012E P/B vs. 6.4X and 1.1X for A-share peers. Thus, we maintain our ratings on CMB A/H (CL-Buy/Neutral) and our 12-monthTP at Rmb17.00/HK$20.20 based on 1.9X 2012E BVPS. Key risks include worsethan-expected inflation, tightening and CMB’s earnings beat.

CMB preannounced 1H11 NPAT of Rmb18.5bn, up 40% yoy, which equals54%/55% of our/Reuters consensus FY11 estimates. Total revenue ofRmb46bn, was up 40% yoy, which accounted for 51% of our FY11 forecastor 5% above our 1H11 estimate. Analysis。 2Q11 NPAT reached Rmb9.7bn, up 10% qoq or up 33% yoy, likely due tohealthy NIM, PPOP growth, and continued cost control initiatives. Theimplied qoq growth rates of revenue, NPAT, and assets are 7%, 10%, and2%, respectively. The NPL ratio remained unchanged from 1Q11 at 61bp as 1H11 resultsdemonstrated a stable asset quality trend. Implications。 Our 2011-2013 EPS estimates are unchanged. We maintain our Buy ratingon CMB A-share (on Conviction Buy List) and Neutral rating on CMB Hshare,and our 12-month target prices of Rmb17.0/HK$20.20 are based on1.9X 2012E BVPS. Risks: Key risks to our target price and investment viewinclude a macro hard landing, CMB’s earnings misses (downside); andstronger-than-expected NIM expansion (upside).

CMB announced that its board has proposed to conduct a rights issue of amaximum 2.2 rights shares for every 10 shares held by both A and Hshareholders. This suggests a total number of rights shares of up to 4.75bn(no more than Rmb35bn), of which 3.89bn shares (Rmb28.7bn) would be Ashares and 860mn would be H shares (Rmb6.3bn). Analysis。 Assuming CMB raises the maximum capital of Rmb35bn (i.e. rights sharesare priced at Rmb 7.4), with a 2% after-tax return on newly raised capital,we estimate the capital raising will result in: (1) roughly 10%/9% effectiveEPS dilution for 11E/12E (11% for 12E if earnings accretion is excluded)given the bank’s current market cap of Rmb289bn; (2) an increase in 2012ETier 1 CAR to 9.7% from 8.9%, and total CAR to 12.5% from 11.7% afterfactoring in potential RWA growth resulting from the new capital rules (Tier1/total CAR to 10.7%/13.5% if new capital rules impact is not considered)and (3) a roughly 3% ROE decrease to 19% in 2012E from our currentforecast of 22%. We believe the current recap plan/EPS dilution is betterthan expectations given the Rmb60bn previously reported in the media,and a scale back from the 20% general mandate. If CMB is not classified asSIB, we believe post-money Tier 1 CAR of around 10% can support thebank’s growth for an extended period of time given its post-money 2012EROE at 19%. Implications。 CMB H-shares/A-shares trade at post-money 9.3X/7.9X 12E P/E and1.7X/1.5X 12E P/B, vs. the H/A sector average of 6.7X/6.8X P/E and1.3X/1.2X P/B. We maintain our ratings on CMB A-shares (Buy, Conviction List) and CMBH-shares (Neutral), and our 12 month target prices are unchanged.

We upgrade Minsheng A-share to Buy as: 1) capital overhang, which had ledto de-rating of the stock more than peers, has been mitigated for the mediumterm given likely better than expected minimum capital requirement andMinsheng’s healthy post re-cap tier 1 capital of 10% assuming full CBconversion, 2) 1X 2012E P/B fully discounts the bank’s below peer profitability;attractive risk/reward, 3) benefits from favorable industry trends, such as NIMexpansion and policy clarity, 4) optionality for further narrowing valuation gapwith peers given five potential areas for RORWA improvement (incl deepeningrelationships with higher ROE SDT clients and lower cost-to-income ratio).

PingAn reported its 2010 Jan-Oct premium of Rmb190 bn under the oldaccounting standard, up 30.5% yoy vs. up 30% in Sept; or Rmb131.7 bnunder the new standard and at 84.6% of our FY10E premium forecast,compared with that of 84.2% in 2009. PingAn Life reported Rmb135.5 bnunder the old standard, up 20.7% yoy vs. up 20.1% in Sept; or Rmb 77.9bnunder the new standard, at 81.5% of our FY10E estimate, compared withthat of 84.8% in 2009. Ping An P&C reported Rmb50.2bn, up 57.6% yoy vs. up 58% in Sept, at 89.5% of our FY10E estimate, compared with that of82.2% in 2009. Analysis。 Ping An Life’s premium growth was slightly weaker than we expected(although the product mix has not been disclosed), partly due to the longholiday during the mid-autumn and National day holidays. Ping An P&C’sgrowth and profitability were above our expectation, as its combined ratiowas as low as 94% in 9M10, improving by 2.3pp vs 1H10. Implications。 We retain our Buy on PingAn A share (on Conviction list) and H share,earnings estimates and 12-month target prices of Rmb78/HK$89.5, bothbased on 2.59X 2011E EV. Key downside risk includes worse than expected new business valuegrowth and worse than expected A-share market performance.

Ping An reported 3Q10/9M10 NPAT of Rmb3.1 bn/Rmb12.8 bn, vs. ourestimates of Rmb4.7 bn/Rmb14.4 bn. However, if we adjust for theunrealized gains of AFS equity investments of Rmb6.5 bn and othercomprehensive income, the 3Q10 adjusted NPAT would be Rmb7.3 bn. 3Q10 equity was Rmb116 bn, 5% above our FY10E estimate. Although a detailed business breakdown was not disclosed, we believe thekey operation trend is solid: 1) standard life insurance premiums grew 41%yoy, on-track to reach our estimated FY10E NBV growth of 36% yoy; 2)P&C premiums grow by 58%, with a better than expected combined ratioof 94.3% in 9M10, continuing to improve from 96.5% in 1H10; 3) 3Q10investment income was Rmb9.3 bn(excluding Rmb6.5 bn unrealized gainsfrom AFS investments), above our Rmb7.5 bn estimate, partly due to therecovery of A-share markets. Negatives include higher than expectedclaims, benefits and expenses of Rmb15.6 bn in 9M10, vs. our estimates ofRmb12.2 bn, partly due to falling long-term bond yields, which lower thediscount rates for policy reserves and thus increase the reserves. What to do with the stock。 We view the operating trend of Ping An in 3Q10 as solid with investmentresults better than expected. We maintain our Buy (Conviction list)/Buyrating for the A share/H share, our earnings estimates and 12 month targetprice of Rmb78/HKD89.5, both based on 2.59X 2011E EV. Downside riskincludes worse than expected NBV growth and A share market.

China Merchants Securities (CMS) reported 9M10 net income of Rmb2.1bn,down 16% yoy and was 70%/72% of our and Reuters consensus FY2010E. Weview CMS’ 9M10 results as inline as we had forecasted broad basedimprovements in CMS operating results in 4Q10, particularly in brokerage andprop trading revenues. 3Q10 net income increased 16% qoq aided by reboundin prop trading gains and higher asset management fees partly offset by lowerinvestment banking fees. Key positives in 3Q10 include: 1) Improving assetmanagement fee income could provide better earnings stability, 2) operatingcost was well control with cost-to-income ratio declining to 41% in 3Q10 from45% in 2Q10. Negatives: 1) net brokerage commission fee rate declined to 6.8bps in 3Q10 vs. 7.3 bps in 2Q10 and 8.0 bps in 1Q10, although managementindicated that fee rate has rebounded modestly in late 3Q10, and 2) Investorfunds at CMS declined 19% qoq in 3Q10 as investors transferred funds back tobanks amid poor equity market performance in 3Q, a trend which likely havereversed given recent rise in % of active trading accounts. What to do with the stock。 We maintain Buy given: 1) improving A-share trading turnover and capitalmarket activity outlook, 2) its premium brokerage business with good brandname and leading institutional client base, 3) relatively more earnings benefitfrom rising A-share turnover, and 4) best indirect channel to invest in highgrowth China asset management industry vs. peers, given above-peer netincome contribution from asset management business. Our 12m target price isunchanged at Rmb25.3, based on 3.3X 2011E P/B. Risks: 1) economic doubledip, 2) sharp decline in brokerage fee rates.

ABC reported 9M10 NPAT of Rmb70.2 bn, up 36% yoy, at 80%/80% of ourand Reuters FY10E consensus estimates. 3Q10 NPAT of Rmb24.3bn, was3% above our 3Q10E estimate. Positives: 1) Solid NIM expansion: NIM up8bp qoq to 2.57% in 3Q10 probably on higher proportion of county loansand pricing power; 2) Net fees grew 35%/33% yoy in 3Q10/9M10; 3) 9M10PPOP grew 39% yoy or 80% of our FY10 estimate, better than expected; 4)Continued improving asset quality with NPL balance declining by 7% qoqin 3Q10 and NPL ratio dropping 24bp qoq to 2.08% as of 3Q10. Althoughcredit costs were a high 108bp in 3Q10, it was mainly because the bankincreased LLR significantly to 160% which could remove an overhang; 5)ROA rose to 98bp in 3Q10 vs. 87bp in 2Q10 and 91bp in FY10E. What to do with the stock。 We view ABC’s 3Q10 results as solid, and retain our Buy/Neutral ratings onABC A/H-shares, with 12-month target prices of Rmb3.6/HK$4.1 based on1.85X 2010E BVPS. Downside risks include China macro double dip andABC’s earning misses.