Bocom Earnings: Margin Contracts Less Than Expected, but Rapid Retail Loan Growth Raises Concerns

We maintain our HKD 6/CNY 5.50 fair value estimate for Bank of Communications after the company's 2024 revenue and net profit growth of 1% reversed a 1% decline in the first nine months. Retail loan growth rebounded, driven by solid demand in the Yangtze River Delta, and net interest margin outperformed expectations. We expect Bocom’s NIM contraction will remain less than state-owned peers in 2025. However, we expect limited 2025 earnings per share growth due to dilution from capital injections, potential credit costs from the bank’s relatively low provision coverage, and concerns about rapid retail lending amid economic uncertainties. We view the H shares, which rose 1.3% after the earnings release, as overvalued at 0.5 times 2025 book value.