|作者：||Felix LUO,Allen Feng|
|摘要：||Report title:China Banking Sector - Key takeaways from investors’ meetings
Analyst:Felix LUO,Allen Feng
■ Some investors may consider bank stocks for undervalued play
■ Prefer large state-owned commercial banks
■ Maintain NEUTRAL; beware of growth of industrial enterprises' revenue
Investors may consider bank stocks for undervalued play
We met with dozens of investors in Hong Kong, Beijing, Shanghai, and Shenzhen to exchange views on China’s banking sector. While concurring that NIMs are under pressure and banks’ loan quality trend is currently uncertain, some investors may consider bank stocks for undervalued play with a range trading strategy. Investors are ready to buy if valuations reach historical low but will realize profits if share prices rise above a certain level.
Prefer large state-owned commercial banks
We recommend investors to focus on large state-owned commercial banks, given that: 1) some large state-owned banks are trading close to their historical low valuations (see figures); 2) PBOC and CBIRC have recently taken over control of Baoshang Bank and will guarantee all corporate deposits and interbank debts of less than RMB50 million. Compared with large state-owned banks, small and medium-sized banks possess higher asset-quality risks, and interbank liabilities make up larger proportions of their total liabilities. Against the backdrop of "removing implicit guarantees", the stability of liabilities decreases, and the operational risk increases for small and medium-sized banks. Thus we recommend avoiding small and medium-sized banks with poor asset quality and high interbank liabilities.
China’s banking sector is currently trading at ~0.64x 2019E P/B ratio. Maintain “NEUTRAL” rating for the sector, given that: 1) NIMs are under pressure partially due to rising average costs of term deposits and trimmed average mortgage loan rates; 2) Our strategy team believes it is still too early to assert that the economy is stabilizing and rebounding. Therefore banks' loan quality trend is still unclear. We recommend paying attention to YoY growths of industrial enterprises' revenue from May to July. If YoY growth continues to rebound (meaning that bank's NPL formation ratio may decline), we may upgrade our rating of the sector. Key catalysts: NIM expansion, upward asset quality trend. Key downside risks: NIM pressure, downward asset quality trend.