Industrial & Commercial Bank of China Ltd. ADS (IDCBY) reports preliminary financial results for the quarter ended 2012-06-30.
Industrial & Commercial Bank of China Ltd. ADS (IDCBY-US) recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. CapitalCube’s analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.
Industrial & Commercial Bank of China Ltd. ADS’s analysis versus peers uses the following peer-set: Wells Fargo & Co. (WFC), HSBC Holdings PLC ADS (HBC), China Construction Bank Corp. (939-HK), Bank of China Ltd. (BACHF), Citigroup Inc. (C), Commonwealth Bank Of Austra Sponsored Adr (CMWAY), Bank of Communications Co. Ltd. (3328-HK), Itau Unibanco Holding S/A ADS (ITUB), China Merchants Bank Co. Ltd ‘H’ (3968-HK) and China CITIC Bank Corp. Ltd. (998-HK). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.
| Quarterly (USD million) | 2012-06-30 | 2012-03-31 | 2011-12-31 | 2011-09-30 | 2011-06-30 |
|---|---|---|---|---|---|
| Revenues | 21,261.5 | 20,947.4 | 19,578.7 | 18,634.7 | 18,576.0 |
| Revenue Growth % | 1.5 | 7.0 | 5.1 | 0.3 | 7.7 |
| Net Income | 9,744.9 | 9,735.7 | 7,004.5 | 8,493.6 | 8,597.5 |
| Net Income Growth % | 0.1 | 39.0 | (17.5) | (1.2) | 5.1 |
| Net Margin % | 45.8 | 46.5 | 35.8 | 45.6 | 46.3 |
| ROE % (Annualized) | 24.3 | 24.9 | 19.2 | 24.9 | 25.9 |
| ROA % (Annualized) | 1.5 | 1.5 | 1.2 | 1.5 | 1.5 |
Valuation Drivers
Industrial & Commercial Bank of China Ltd. ADS trades at a lower Price/Book multiple (0.3) than its peer median (1.0). The market expects IDCBY-US to grow at about the same rate as its chosen peers (PE of 5.8 compared to peer median of 5.8) and to maintain the peer median return (ROE of 24.0%) it currently generates.
The company’s capital efficiency (capital turns i.e.revenue/equity of 0.6x) and net profit margins of 43.5% are both median for its peer group. IDCBY-US’s net margin is similar to last year’s high of 43.6%, which compares to a low of 31.5% in 2007.
Economic Moat
The company’s year-on-year change in revenue of 30.3% is better than the peer median but it has not resulted in the same quality of annual earnings growth (32.2% compared to the peer median of 28.4%). This suggests thatIDCBY-US’s current relative cost structure needs to improve to move to a leading position among its peers. IDCBY-US is currently converting every 1% of change in revenue into 1.1% change in annual reported earnings.
IDCBY-US’s return on equity currently is around peer median (24.0% vs. peer median 20.0%) — similar to its returns over the past five years (20.3% vs. peer median 18.1%). This performance suggests that the company has no specific competitive advantages relative to its peers.
The company’s net interest income (net interest income/total revenues) of 76.9% is around peer median suggesting that IDCBY-US’s lending operations does not benefit from any differentiating pricing advantage. In addition, IDCBY-US’s pre-tax margin of 56.4% is also around the peer median suggesting no operating cost advantage relative to peers.
Growth & Investment Strategy
IDCBY-US’s revenues have grown at about the same rate as its peers (18.0% vs. 18.4% respectively for the past three years). Similarly, the stock price implies median long-term growth as its PE ratio is around the peer median of 5.8. The historical performance and long-term growth expectations for the company are largely in sync.
IDCBY-US’s annualized rate of change in equity capital of 19.7% over the past three years is around its peer median of 23.9%. This median investment has likewise generated a peer median return on equity of 21.8% averaged over the same three years. This median return on investment implies that the company is investing appropriately.
Earnings Quality
IDCBY-US’s net income margin for the last twelve months is around the peer median (43.5% vs. peer median of 37.5%). This average margin combined with a level of accruals that is around peer median (37.9% vs. peer median of 37.9%) suggests there possibly isn’t too much accrual movement flowing into the company’s reported earnings.
IDCBY-US’s accruals over the last twelve months are positive suggesting a buildup of reserves. However, this level of accruals is also around the peer median and suggests the company is recording a proper level of reserves compared to its peers.
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