Bank of China Ltd. :BACHY-US: Earnings Analysis: Q4, 2016 By the Numbers : September 5, 2017

Bank of China Ltd. reports financial results for the quarter ended December 31, 2016.

We analyze the earnings along side the following peers of Bank of China Ltd. – China Minsheng Banking Corp., Ltd. Unsponsored ADR Class H, Industrial and Commercial Bank of China Limited Unsponsored ADR Class H, Bank of Communications Co., Ltd. Unsponsored ADR Class A, HSBC Holdings plc Sponsored ADR, China Construction Bank Corporation Unsponsored ADR Class H, Bank of America Corporation, Credicorp Ltd., mBank SA Unsponsored ADR and Sumitomo Mitsui Financial Group, Inc. (CMAKY-US, IDCBY-US, BCMXY-US, HSBC-US, CICHY-US, BAC-US, BAP-US, BREJY-US and SMFNF-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 17,024.72 million, Net Earnings of USD 4,333.78 million.
  • Year-on-year change in operating cash flow of 58.65% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings decline from worsening in operating margins as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 17024.72 16241.78 21593.83 18903.43 18593.95
Revenue Growth (%YOY) -8.44 -14.17 11.99 -3.42 3.86
Earnings (mil) 4333.78 6265.56 7064.82 7138.3 6138.27
Earnings Growth (%YOY) -29.4 -3.04 -2.45 -2.83 -1.79
Net Margin (%) 25.46 38.58 32.72 37.76 33.01
EPS 0.36 0.52 0.61 0.61 0.51
Return on Equity (%) 2 2.89 3.28 3.35 2.96
Return on Assets (%) 0.66 0.94 1.07 1.09 0.94

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Market Share Versus Profits

Revenues History
Earnings History

BACHY-US‘s change in revenue this period compared to the same period last year of -8.44% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that BACHY-US is holding onto its market share. Also, for comparison purposes, revenues changed by 4.82% and earnings by -30.83% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

BACHY-US‘s change in operating cash flow of 58.65% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Contraction of operating margins from 43.56% to 33.02% and (2) One-time items that contributed to a decrease in pretax margins from 44.24% to 33.66%

EBIT Margin History
PreTax Margin History
EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables

Access our Ratings and Scores for Bank of China Ltd.

Company Profile

Bank of China Ltd. engages in the provision of banking and related financial services such as commercial and investment banking and insurance and investment services. The company operates its business through the following segments: Corporate Banking, Personal Banking, Treasury Operations, Investment Banking, Insurance, and Others. The Corporate Banking segment offers services to corporate customers, government authorities, and financial institutions such as current accounts, deposits, overdrafts, loans, custody, trade related products and other credit facilities, foreign currency, and derivative products. The Personal Banking segment provides services to retail customers such as current accounts, savings, deposits, investment savings products, credit and debit cards, consumer loans, and mortgages. The Treasury Operations segment deals in foreign exchange transactions, customer-based interest rate and foreign exchange derivative transactions, money market transactions, proprietary trading, and asset and liability management. The Investment Banking segment includes debt and equity underwriting and financial advisory, sales and trading of securities, stock brokerage, investment research and asset management services, and private equity investment services. The Insurance segment specializes in the underwriting of general and life insurance business and insurance agency services. The Others segment comprises investment holding and other miscellaneous activities. The company was founded on February 5, 1912 and is headquartered in Beijing, China.

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