Here Is How Industrial and Commercial Bank of China Ltd Made RMB 286 Billion A Year

Industrial and Commercial Bank of China Limited (ICBC) was successfully listed on both the HKEX and SSE on 27 October 2006. Since then, it has matured and now ranks first in the list of the Top 1000 World Banks by the Bankers. As at 11 March 2019, ICBC is worth HK$ 2.13 trillion in market capitalisation.

In this article, I’ll cover its fundamental strengths, its latest financial results and its valuation figures based on its current stock price of HK$ 5.90 a share. Hence, here are 10 things to know about ICBC before you invest.

• Loan and Advances Portfolio
  ICBC has achieved CAGR of 13.5% in its loans and advances assets from RMB 4.4 trillion in 2008 to RMB 13.9 trillion in 2017. Since 2009, it kept its non-performing loan (NPL) ratio at around 1.0% – 1.5% levels, hence, maintaining its asset quality during the 10-year period.
  
  
  

Source: ICBC’s Annual Reports

• Investments
  In 2017, ICBC’s investment portfolio consists of mainly:
  
  – Government Bonds: 57.0%
  – Policy Bank Bonds: 17.3%
  – Other Bonds: 19.7%
  – Other Investments (Central Bank Bills & Equity Instruments): 6.0%
  
  
  ICBC has achieved CAGR of 7.3% in its portfolio of investments, growing from RMB 3.0 trillion in 2008 to RMB 5.8 trillion in 2017.
  
  
  

Source: ICBC’s Annual Reports

• Net Interest Income
  ICBC has achieved CAGR of 7.9% in net interest income, increasing from RMB 263.0 billion in 2008 to RMB 522.1 billion in 2017. The growth had been contributed by ICBC’s increases in its loans and advances portfolio and investment portfolio, which was marginally offset by a slight dip in its net interest margins (NIM) during the period. NIM has dropped to 2.22% in 2017 from 2.95% in 2008.
  
  
  

Source: ICBC’s Annual Reports

• Net Fee & Commission Income
  ICBC has achieved CAGR of 13.7% in non-interest income, growing from RMB 44.0 billion in 2008 to RMB 139.6 billion in 2017. It is attributed to the increase in primarily in bank card business, personal wealth management, private banking services, settlement, clearing, cash management, asset custody business, and corporate wealth management services over the past 10 years.
  
  
  

Source: ICBC’s Annual Reports

• Profitability
  Operating revenues had grown at CAGR of 9.0% to RMB 675.7 billion in 2017 from RMB 310.2 billion in 2008. This is contributed by an increase in both net interest income and net fees and commission income in the 10-year period. ICBC has improved its cost-to-income (CIR) ratio from a high of 33.2% in 2009 to 26.5% in 2017. As a result, ICBC had increased its shareholders’ earnings by CAGR of 11.1%, which is at a faster rate as compared to its operating revenues. Earnings had increased from RMB 110.8 billion in 2008 to RMB 286.0 billion in 2017. Its Return on Equity (ROE) has dropped from 21.79% in 2011 to 13.45% in 2017. It is due to faster growth in ICBC’s shareholders’ equity as compared to its growth in earnings over the last six years.
  
  
  

Source: ICBC’s Annual Reports

• Latest 12-Month Financial Results
  From Q4 2017 to Q3 2018, ICBC recorded a total of RMB 709.3 billion in operating revenue and RMB 297.7 billion in shareholders’ earnings or a total of RMB 0.827 or HK$ 0.97 in earnings per share (EPS).
  
  Figures in RMB Billion unless stated otherwise

Period	Q4 2017	Q1 2018	Q2 2018	Q3 2018	Total
Revenue	169.4	183.2	178.1	178.6	709.3
Earnings	58.1	78.8	81.6	79.2	297.7
EPS (RMB)	0.161	0.219	0.227	0.220	0.827

Source: BOC’s Quarterly Reports

• Balance Sheet Strength
  As at 30 September 2018, ICBC has reported total capital ratio (TCR) of 14.81% and liquidity coverage ratio (LCR) of 120.36%. It indicates, ICBC is well-capitalised and has adequate resources to meet its obligations if an event of intense stress conditions occurs in the future. ICBC has been granted ‘A’ and ‘A1’ in credit rating from S&P and Moody’s.
  
  
  
• List of Major Shareholders
  As at 30 September 2018, the 5 largest shareholders of ICBC and their percentage of shareholdings are as follows:
  
  
  

No.	Top 5 Shareholders	Shareholdings (%)
1	Ministry of Finance of the People’s Republic of China	33.11%
2	Central Huijin Investment Ltd	35.00%
3	National Council for Social Security Fund	2.43%
4	Temasek Holdings (Private) Limited	2.05%
5	Ping An Asset Management Co., Ltd	2.44%

Source: ICBC’s Q3 2018 Report

• P/E Ratio
  As at 11 March 2019, ICBC is trading at HK$ 5.90 a share. Hence, ICBC’s current P/E Ratio is 6.08 based on its recent 12-month EPS of HK$ 0.97, which is below its 10-Year Average of 7.77.
  
  
  

• P/B Ratio
  As at 30 September 2018, ICBC has reported having a net asset per share of RMB 6.12 or HK$ 7.15. Hence, its current P/B Ratio is 0.825, which is below its 10-Year Average of 1.430.
  
  
  

• Dividend Yields
  In 2017, ICBC had paid RMB 0.241 or HK$ 0.288 in dividends per share (DPS). Hence, its current dividend yield is 4.88% a year, which is slightly below its 10-Year Average of 5.03% per annum.
  
  
  

VIA’s Verdict

ICBC has delivered consistent growth in sales, profits, and dividend payouts for the last 10 years. Despite consistency in results, its share price movements had been rather choppy, ranging from HK$ 3 – HK$ 7 throughout the 10-year period.

Source: Google Finance

In terms of valuation, ICBC has P/E Ratio of 6.08, P/B Ratio of 0.825 and yields a total of 4.88% per annum. Is this a good time to buy ICBC?

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