Company Reports

Bank of Communications', or Bocom's, second-quarter revenue and profit growth improved to 9% and 5%, respectively, from 5% and 3% in the first quarter.

Striving to become China's leading wealth-management bank, Bocom is building its international presence and developing a wide range of financial service businesses. The bank achieved solid progress in the transformation, as evidenced by its growing retail customer base, customer assets under management, and a booming credit card business, leveraging its solid customer base in the affluent Yangtze River Delta. Its deposit base remained weaker than those of moaty peers, resulting in higher funding costs. We expect Bocom still has a long way toward its goal of being a leading wealth management bank.

Bank of Communications' first-quarter revenue and net profit growth accelerated to 5% and 3%, respectively.

Striving to become China's leading wealth-management bank, Bocom is building its international presence and developing a wide range of financial service businesses. The bank achieved solid progress in the transformation, as evidenced by its growing retail customer base, customer assets under management, and a booming credit card business, leveraging its solid customer base in the affluent Yangtze River Delta. Its deposit base remained weaker than those of moaty peers, resulting in higher funding costs. We expect Bocom still has a long way toward its goal of being a leading wealth management bank.

Bank of Communications' fourth-quarter revenue and net profit growth accelerated to nearly 3%, bringing full-year revenue and profit to 2%. Management is guiding for a higher revenue growth and a stable net interest margin for 2026.

Industrial and Commercial Bank of China held an Investor Day on Nov. 26, highlighting recent trends in net interest margin, or NIM, demand from corporate and inclusive finance sectors, and potential in the overseas banking segment.

Bank of Communications' year-to-September revenue and net profit grew 1.8% and 2%, respectively, year on year.

China's six state-owned enterprise banks reported first-half revenue growth of 0.8%-3.8% year on year, the best since 2022. Net profit performance diverged, ranging from a 1.4% decline to 2.7% growth, reflecting differences in loan-loss provisioning. Operating expenses were flat to slightly lower.

China will reinstate a 6% value-added tax on interest income from treasury bills, local government bonds, and financial institution notes issued after Aug. 8. These had been exempt since 2016.

We update our cost of equity, or COE, assumptions for Bank of Communications, or Bocom, to reflect a combination of recent industry developments, including weaker-than-expected year-to-date loan growth, a modest May interest rate cut, and policies to curb pricing competition among banks.

Striving to become China's leading wealth-management bank, Bocom is building its international presence and developing a wide range of financial service businesses. The bank achieved solid progress in the transformation, as evidenced by its growing retail customer base, customer assets under management, and a booming credit card business, leveraging its solid customer base in the affluent Yangtze River Delta. Its deposit base remained weaker than those of moaty peers, resulting in higher funding costs. We expect Bocom still has a long way toward its goal of being a leading wealth management bank.

Striving to become China's leading wealth-management bank, Bocom is building its international presence and developing a wide range of financial service businesses. The bank achieved solid progress in the transformation, as evidenced by its growing retail customer base, customer assets under management, and a booming credit card business, leveraging its solid customer base in the affluent Yangtze River Delta. Its deposit base remained weaker than those of moaty peers, resulting in higher funding costs. We expect Bocom still has a long way toward its goal of being a leading wealth management bank.

Bank of Communications', or BoCom's, first-quarter revenue fell 1% while net profit rose 1.5% year on year.

We maintain our fair value estimates for Industrial and Commercial Bank of China, or ICBC, China Construction Bank, or CCB, Agricultural Bank of China, or ABC, and Postal Savings Bank of China, or PSBC, after they reported net profit growth in 2024 of 0.5%, 1.1%, 4.8%, and 0.3% respectively. ABC’s net profit growth exceeded our expectation by 1 percentage point, driven by industry-leading loan growth and strong investment gains. Other banks’ results are in line.

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.

We maintain our fair value estimates for six Chinese banks—Bank of Communications, or BOCOM, Postal Savings Bank of China, or PSBC, China Minsheng Bank, or Minsheng, China Industrial Bank, or CIB, Ping An Bank, or PAB, and Bank of Ningbo, or BONB.

Striving to become China's leading wealth-management bank, Bocom is building its international presence and developing a wide range of financial service businesses. The bank achieved solid progress in the transformation, as evidenced by its growing retail customer base, customer assets under management, and a booming credit card business, leveraging its solid customer base in the affluent Yangtze River Delta. Its deposit base remained weaker than those of moaty peers, resulting in higher funding costs. We expect Bocom still has a long way toward its goal of being a leading wealth management bank.

We have raised our fair value estimates for some of China's SOE banks after third-quarter earnings. Our fair value estimate for Agricultural Bank of China, or ABC, rises 16% to HKD 4.4; for Industrial and Commercial Bank of China, or ICBC, by 8% to HKD 5.4; and for China Construction Bank, or CCB, by 10% to HKD 6.8. This adjustment reflects our reduction in credit cost assumptions by 2 basis points-8 basis points for 2024 and 2025 after China's recent economic stimulus package. Our FVEs for the other three SOE banks, namely Bank of China, or BOC; Bank of Communications, or BoCom; and Postal Savings Bank of China, or PSBC, are unchanged.

We retain fair value estimates for Bank of Communications, or BoCom, at HKD 6.0, China Merchants Bank, or CMB, at HKD 48, China Citic Bank, or Citic, at HKD 5.7, and China Minsheng Bank, or CMBC, at HKD 3.6 per H share. For Bank of Ningbo, or BONB, the FVE is CNY 27 per A share. The banks' interim results aligned with our expectations for net profit growth ranging from flat to low single digits in 2024. H shares of these banks appear undervalued, trading between 0.2 times-0.7 times 2024 book value, with attractive dividend yields of 6.5%-8.5%, except for BONB, with 3% dividend yield in A stock market. Despite weak net interest margin, or NIM, for CMB, we favor it due to its superior return on equity, steady dividends, and upside potential if consumer sentiment in China recovers.

Driven by improved investor sentiment for China banks with stable dividend payments and a historic property rescue package introduced in May, the Hang Seng Mainland Banks Index rallied over 20% in the second quarter. But it pulled back sharply on profit-taking and investors’ concerns that the easing measures were not sufficient to turn around struggling property sales. H-shares of most China banks remain undervalued, with 2024 price/book modestly increasing to 0.2-0.5 times. Dividend yields remain attractive at 6%-8%. With A-share counterparts trading at a 35% premium to H-shares on average, we expect the regulators’ push for higher and more regular dividend payouts, as well as the expansion of eligible exchange-traded funds on Stock Connect, should gradually narrow the valuation gap for Chinese dual-listed banks. Amid sluggish economic growth in China with no major recovery in property sales and consumer spending anticipated in 2024, we prefer defensive state-owned banks, including China Construction Bank, or CCB, and Industrial and Commercial Bank of China, or ICBC, and leading retail-focused bank China Merchants Bank for stable dividends, strong capital returns, and better earnings visibility.