CMB 1Q15 net profits jump 15 y/y to RMB17.2 bn

Thanks partly to solid margin expansion.

China Merchants Bank Co. reported 1Q15 net profits of RMB 17.2bn, +15% y/y, higher than Barclays' expectations.

According to a research note from Barclays, it cited strong margin expansion and fee income growth for the development.

Barclays noted that it maintains its OW rating as it believes the implementation of employee stock ownership plan could better align interest of employees with shareholders.

Also, that the bank has profit growth prospects that are stronger than its peers, and the bank has one of the strongest retail banking franchises.

Here's more from Barclays:

Strong profit growth: CMB reported higher-than-expected 1Q15 net profit of RMB 17.2bn, 15% y/y, the highest y/y growth rate among peers that have reported so far.

Pre-provision operating profits rose by 30% y/y in 1Q15, driven by both net interest income (22% y/y) and fee income (49% y/y). NIM expanded by 18bps q/q to 2.90% in 1Q15, mainly driven by: 1) higher LDR (+263bps q/q) as loans outpaced deposit growth; 2) lower interbank funding cost in an environment of abundant liquidity; and 3) more investment in non-standard credit assets, in our view.

Asset quality deteriorated but provision was sufficient: NPL ratio rose by 13bps q/q to 1.24% (a pick-up from + 1bps q/q in 4Q14) and NPL balance rose 17% q/q. Strong top-line growth offset higher impairment charges (+72% y/y). Credit costs rose to 1.98% in 1Q15, up 67bps y/y and 42bps q/q. Loan loss coverage declined by 10ppts to 224% at end-1Q15.

Deposit growth relatively weak: CMB's deposit rose by only 0.6% q/q in 1Q15 (after strong growth of 19% y/y in 2014), in line with other mid-sized banks. In contrast, loans grew by 4.3% q/q in the quarter. The calculated LDR reached 78.7% as of end-1Q15.