Goldman Sachs Retains "Buy" Rating for CM BANK with Slightly Lowered Target Price

Goldman Sachs has issued a research report maintaining its "Buy" rating for China Merchants Bank (03968). The firm made minor adjustments to its forecasts for pre-provision profits and net profits for 2026 to 2028, lowering them by approximately 1% each. The target price for the H-shares was slightly reduced to HK$53.53, while the target price for the A-shares (600036.SH) was marginally lowered to 54.87 yuan.

The bank anticipates that a stabilization in CM BANK's net interest margin and a recovery in credit growth will drive a rebound in net interest income. Furthermore, the wealth management business is expected to lead to stronger growth in fee-based income. Superior asset quality and sufficient existing provisions are seen as providing room for a reduction in credit costs.

According to the report, during the 2025 earnings conference call, company management projected that CM BANK's revenue growth would stabilize and show an upward trend in 2026. This is primarily attributed to a continued narrowing in the pace of net interest margin compression, which is expected to stabilize in the second half of 2026, alongside ongoing improvements in fee income growth. Goldman Sachs reiterated its view that CM BANK's profit growth in 2026 will outperform that of the four major state-owned banks.

Management noted that the increase in the non-performing loan formation rate in the fourth quarter of 2025 was mainly due to a one-time exposure of real estate risks. However, the impact was limited because sufficient provisions had already been made for the real estate sector. Looking ahead to 2026, the outlook for corporate asset quality trends is positive. Retail asset quality is expected to remain under pressure, but overall risks are considered controllable, and credit costs are likely to decrease, supporting better profit growth.

Additionally, the decline in the core tier 1 capital adequacy ratio was primarily influenced by the introduction of an interim dividend and volatility in the bond market. Future risk-weighted asset growth is projected to be between 9% and 10%, and the dividend payout ratio is expected to remain stable.