Bank of Ningbo: Interest Income Up From a Low Base but Fee Income Weakens

We maintain our fair value estimate for Bank of Ningbo, or BONB, at CNY 32 per share following in-line first-half 2023 results. The stock is undervalued, trading at one times the 2023 price/book. BONB’s share price slumped 19% year to date on concerns about growing net interest margin pressure as retail lending faces intensifying pricing competition from state-owned banks. Investors are also worrying that the soft capital markets will weigh on revenue growth more adversely than peers as agency fees contributed 87% of total fee income at BONB. However, we believe investor concerns are overblown as the first-half results show BONB’s ability to keep average asset yields stable at first-quarter levels, and the bank’s number of retail customers and retail assets under management both experienced decent double-digit percentage pace growth. We expect BONB’s future growth will inevitably slow on capital constraints after the robust asset expansion over the past few years. However, the bank should be able to maintain above-peer return on equity thanks to its differentiated business strategy and extensive branch network in the most affluent areas in China.