China Citic Bank Earnings: Margin Pressure Smaller Than Peers and Fee Income Growth Rebounds

China Citic Bank's, or Citic's, first-half results were largely in line, with quarter-on-quarter improvement in both revenue and net profit growth. We retain our fair value estimate of CNY 5.20 per A share (HKD 5.70 per H share). H shares are undervalued, trading at a historical trough of below 0.3 times 2023 price/book. We expect the bank's stable credit quality and limited exposure to property sector should help ease market concerns. Management's asset-derisking efforts over the past four years have showed positive progress and we expect this trend will continue to support Citic's asset quality in 2023, despite rising risk from real estate sector loans. The results also highlight the fact that the bank is gaining increasing synergies from its parent group in customer engagement, wealth management, and comprehensive financing businesses, as evidenced in its faster-than-peer retail credit expansion and recovery in fee income growth in the second quarter.