光大银行(601818)

SUMMARY. We attended CEB’s reverse road show in Shanghai, with recentoperating results, wealth management business, and technology developmentstrategy as main themes. Cloud Payment, the Bank’s key digitalization initiative,offers a great boost to client base growth and potential earnings, in our view.

The largest open-ended payment platform in China. Retail business andtechnology utilization are crucial for CEB’s strategic goal of “building a firstclass wealth management bank”. Cloud Payment (云缴费) is one of the Bank’sinitiatives to carry out inclusive finance and explore the utilization of financialtechnology. The number of user and transaction amount saw an explosivegrowth in the past years, reaching 253mn and RMB 206bn, respectively, in2018, making it the largest open-ended payment platform in China.

Contribution to fee/deposit/customer base. Cloud Payment’s majorcontribution to CEB are threefold: 1) Fee income, including agency andplatform access fee, was RMB 160mn (up 159% YoY) in 2018 and expectedto reach RMB 300mn in 2019; 2) Deposit inflow from payment receivinginstitutions, as they have to set up account in CEB for settlement and clearingpurpose; 3) Collection of massive user data and conversion of users intocustomers of the Bank.

Other questions/concerns from investors. 1) CEB’s wealth managementbusiness transformation is ahead of peers, in terms of product design andbrand building. It targets to be the first JSB to get approval for operation ofWM subsidiary; 2) Credit card business remains a strategic focus, but growthwill moderate due to proactive risk control, e.g. restricting the usage of creditcard overdraft and adjusting client mix; 3) Despite stricter NPL recognition andfaster disposal in 2018, management was cautious on 2019 outlook.Classifying >60-day overdue loans to NPLs may result in some asset qualitypressure; 4) NIM trend should be largely stable in 2019. Asset yields mayfurther decline, and deposit cost hike will be eased by scrutiny on irregulardeposit absorption; 5) Management was confident that the RMB 30bn CBissued in 2017 would be converted to equity in foreseeable future.

Initiate CEB-A with BUY rating and RMB 4.50 TP. CEB-A trades at 0.65xFY19E P/B, 11% below historical mean of 0.73x and 14% below A-sharebanks’ average of 0.76x. Our TP of RMB 4.50 is based on GGM-derived targetP/B of 0.75x and 2019E BPS of RMB 5.98.