$China Citic Bank Corporation Limited(601998)$ $China Citic Bank Corp., Ltd.(CHBJF)$ $China Citic Bank Corp., Ltd.(CHCJY)$
National Service back into focus!
While CNCB posted the highest earnings growth in 1Q23 among its peers, we expect downward pressure on NIM to continue due to recent cuts in benchmark lending rates. Also, there have been discussions in the market about the possible launch of remortgage products. The softening of macro growth momentum & rising concerns about local government financing vehicles (LGFVs) will cap banks valuation from re-rating until more clarity on the developments in these two issues. Hence, the “national service” by Chinese banks will come back in focus again. While it is estimated that total interest bearing liabilities of LGFVs was about CNY60t as of end-2022, accounting for about 12-13% of Chinese banks total assets, chances of a systemic risk would be low. Near-term earnings pressure and/or dividend payout cuts are likely to be low due to a provisions buffer that has been built up over the past few years. Despite the stock trading at an undemanding valuation of 0.24x forward price-to-book (P/B) & 10.5% 2023 dividend yield, we do not expect any material valuation re-rating in the near-term. We fine-tune our fair value estimate to HKD4.30, with the same valuation multiple of 0.3x forward P/B, implying -0.75 s.d. below its historical average.
I would not be investing in this at the moment due to China's weak economic performance. Even with the easing of the monetary policies, it remains to be seen if they would be effective in stimulating demand. The Chinese are just not spending at the moment. May enter the stock if it hits lower in the coming months.
DYODD
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