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.