Tony: Located this recent analysis of Bank of East Asia. This is not
posted as a recommendation of the analysis or its' contents. The analyst also is just giving their opinion. (in other words, it is
far more factual than my previous words, but not Gospel.)
(APR Research-HK) BKEAY SUMMARY 0023.HK
RESEARCH SUMMARIES
Hong Kong / China Daily Notes (Part I)
APR Research-HK
CHINA ECONOMICS
Growth targets of monetary aggregates were set around 1997's actual
levels.
Major recapitalization program for the banking system seems unlikely in
1998.
Monetary policy is less relevant to economic activities, and the target
figures may not be that important.
There should be little pressure on the renminbi to devalue.
DISCUSSION
China's central bank has set growth targets of monetary aggregates for 1998 at
around 1997's actual levels (Table 1). The M1 and M2 targets are nearly the
same as the growth rates in 1997. Slightly lower M0 growth for 1998 appeared to
reflect the central bank's expectation about weakening consumption demand.
China's M0, money in circulation, is driven largely by nominal consumption.
While M1 includes M0 and demand deposits, M2 is defined as M1 plus time
deposits.
Table 1. Growth of Monetary Aggregates
1997 actual 1998 target
M0 15.6 14
M1 16.5 17
M2 17.3 16-18
Source: Bloomberg
A large scale recapitalization program for the banking system seems unlikely in
1998. As we argued before, any of such programs would require substantial
acceleration in growth of money supply. Non-performing loans were estimated
US$200bn according to Standard & Poor, 1.6 times China's M0 by the end of 1997.
Monetary policy is less relevant to economic activities, and the target
figures may not be that important. Since consumer loans are not available, the
most important transmission mechanism through which monetary policy may affect
the economy is investment. Growth of fixed-asset investment fell to 9% in 1997
from 10.8% a year ago. The slowdown in investment growth was not so much due
to credit availability but the lack of investment opportunities. For instance,
the central bank cut interest rate twice in 1996 and once in 1997, but was
unable to halt the slide of investment growth.
There should be little pressure on the renminbi to devalue in 1998, for the
monetary targets are not so high as to create excess supply of local
currency.
BANK OF EAST ASIA (Reduce, HK$13.40/US$1.73) Hong Kong
1996's Provisions Weren't So Special: 1997 Final Results Banking
EPS: 97A HK$1.56; 98E HK$1.47; 99E HK$1.54 PER: 97A 8.6x; 98E 9.1x; 99E
8.7x
Bank of East Asia (BEA) has underperformed the HSI by 15% since the
beginning of 1998 whilst peer Dao Heng Bank Group (DHBG) has
underperformed by 28%.
At 9.1x 1998 forecast earnings and 1.4x book, BEA's ratings are double
that of DHBG yet Asia ex Hong Kong exposure stand at 11% of total assets and
the China growth story appears to have slowed somewhat.
In addition to the above, we continue to prefer DHBG for its much lower
LDR which should provide more margin flexibility.
Net profit up 11% over 1996, basic earnings per share 9%, slightly below
forecasts. Principal variance in higher specific provisions which is a concern
after some problems in 1996.
A HK$173m write-off of long term investments, principally relating to Asia
ex HK (offset by a HK$175m disposal gain), came as something of a surprise and
raises fears about future losses in this area.
PRC profit contribution declined in percentage and possibly $ terms.
(BKEAF/BKEAY, C-4-3-7)
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-> End of Note <- |
