Bank of Chongqing: Robust Trends and Cheap Valuation Characterise Chongqing

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

Bank of Chongqing Co Ltd H / Equity Bottom-Up

Bank of Chongqing (1963 HK) dedicates itself increasingly to corporate lending (61.4% of loan book) but also to consumer segments (34.7%), to some discount bills (3.9%), funded by time deposits (68% of deposits) and by transaction accounts (26.6%). The bank has been expanding its business in recent years, whether it be Corporate, SME, Consumer, Trade Finance, Capital Markets, Green Finance, Wealth Management, or Financial Leasing. While rooted in Chongqing, the bank has built a strong presence in Sichuan, Guizhou, and Shaanx. Management is fortifying the application of financial technologies, with the online loan business growing fast, while deposits are growing moderately. Balance Sheet expansion is somewhat in excess of the System in general. In addition, the Bank has strengthened governance, and put in place a mechanism for online tracking of asset quality and a risk monitoring system that combines micro and macro aspects. Management has beefed up risk control tools, advanced post-loan online service and the online management of credit authorisation and inquiry, and promoted the tools used to expand the credit business. Fintech innovation is centred on 5G, AI, IoT, biometrics, blockchain and other technologies through lean management robots, remote banks, intelligent WAN and integrated operation and maintenance projects. Management is active in funding Belt and Road, Yangtze River Economic Belt, and the Chengu-Chongqing Economic Circle.Recent results show positive fundamental momentum and trends with clear improvement in Efficiency, NIM and Spread, as well as better Capital Adequacy and Provisioning. The valuation variable too is a positive in our PH Score™. Given the increase in LLPs, on account of a 15% jump in NPLs, Profitability though eroded somewhat. Growth in “Core Income” was robust, especially in Net Interest Income, spurred by above-System credit expansion of 16% YoY.<div class="content-highlight">A FV of 9%, a PBV of 0.39x, an Earnings Yield of 28.0%, and a Dividend Yield of 8.4%, are not unattractive. The bank commands both a top quartile PH Score™ and VFM ranking. </div>

Bank of Chongqing (1963 HK) dedicates itself increasingly to corporate lending (61.4% of loan book) but also to consumer segments (34.7%), to some discount bills (3.9%), funded by time deposits (68% of deposits) and by transaction accounts (26.6%). The bank has been expanding its business in recent years, whether it be Corporate, SME, Consumer, Trade Finance, Capital Markets, Green Finance, Wealth Management, or Financial Leasing. While rooted in Chongqing, the bank has built a strong presence in Sichuan, Guizhou, and Shaanx. Management is fortifying the application of financial technologies, with the online loan business growing fast, while deposits are growing moderately. Balance Sheet expansion is somewhat in excess of the System in general. In addition, the Bank has strengthened governance, and put in place a mechanism for online tracking of asset quality and a risk monitoring system that combines micro and macro aspects. Management has beefed up risk control tools, advanced post-loan online service and the online management of credit authorisation and inquiry, and promoted the tools used to expand the credit business. Fintech innovation is centred on 5G, AI, IoT, biometrics, blockchain and other technologies through lean management robots, remote banks, intelligent WAN and integrated operation and maintenance projects. Management is active in funding Belt and Road, Yangtze River Economic Belt, and the Chengu-Chongqing Economic Circle.Recent results show positive fundamental momentum and trends with clear improvement in Efficiency, NIM and Spread, as well as better Capital Adequacy and Provisioning. The valuation variable too is a positive in our PH Score™. Given the increase in LLPs, on account of a 15% jump in NPLs, Profitability though eroded somewhat. Growth in “Core Income” was robust, especially in Net Interest Income, spurred by above-System credit expansion of 16% YoY.A FV of 9%, a PBV of 0.39x, an Earnings Yield of 28.0%, and a Dividend Yield of 8.4%, are not unattractive. The bank commands both a top quartile PH Score™ and VFM ranking. 

Bank of Chongqing: Cheap Given Fundamental Dynamics