 Earnings mix slightly weaker than expected – ICBC’s 2Q net profit was in-line
with our expectations, but earnings mix was slightly below as qoq growth in net
interest income (+1%) and fees (+5%) was more sluggish than expected, but
was offset by low credit cost of 40bps. Low provisions reflected strong credit
quality (NPL balance down 6% hoh) as provision coverage rose from 130% to
138% in 1H09. NIM decline (-19bps qoq) was slightly larger than expected.
 Strong NIM recovery in July – Management guidance was very positive,
indicating that NIM began to recover in July and is set to recover further; July
NIM (2.25%) was 10bps higher than the 2Q average. Mix of demand deposits
increased significantly by 5% points in June/July. Mix of discounted bills will
continue to shrink, while yields are up (July 2.08% vs. low of 1.73%). Time
deposits have further room to reprice, while loan repricing is largely complete.
We believe net interest income growth will pick up meaningfully in 3Q and 4Q.
 NPLs to fall further in 2H09 – Management stated that NPL balance will fall
further in 2H. Should NPL formation remain stable, we believe a low credit cost
could be sustained in 2H while achieving an increase in coverage to 150%.
 Inexpensive valuations – We maintain our EPS estimates, which are 8%/14%
above FY09E/10E consensus. We believe valuations are attractive on 9.7x
FY10E for 20% EPS CAGR FY09-10E, 2.0x FY10E P/B for 22% ROE. Buy.