Agricultural Bank of China: A Strategic Stall

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Thematic (Sector/Industry)

Chinese banks are not excessively valued on a P/Book, PER, Franchise Valuation, and Dividend Yield basis. One can pick up shares in the low-risk "Big Four" SOEs on a Dividend Yield of between 5.4% and 6.8%.  This makes them solid coupon-clipping opportunities in a low yield world. Of the banks that we track here, the SOEs have some of the best earnings quality, ROAs, NIMs, and Debt/Equity levels.Fundamental trends at the banks that we analyse today are mostly benign. From our sample, we can ascertain fundamental progression in Capitalisation, headline Efficiency, and Provisioning levels. While Profitability is trending downwards, due to OPEX not adjusting to modest top-line growth in some cases or high asset write downs, NIMs have been generally holding up well. Headline Asset Quality has improved in general though Impairment growth can be worryingly elevated and bad loan migration through stages is a frequent issue as well as overexposure to commercial property at times. LDRs though are mostly heading in the right direction with Deposits expansion outpacing credit growth. A stable or improving scenario may not be the narrative for swathes of Chinese banks but it is generally the story for the majority of the 21 banks that we analyse here.We apply our PH Score value-quality gauge in combination with Fundamental Strength indicators and Valuation measures in order to establish the best opportunities as well as the greatest risks.While the dynamics of the numbers here are positive, we await a catalyst.

Chinese banks are not excessively valued on a P/Book, PER, Franchise Valuation, and Dividend Yield basis. One can pick up shares in the low-risk "Big Four" SOEs on a Dividend Yield of between 5.4% and 6.8%.  This makes them solid coupon-clipping opportunities in a low yield world. Of the banks that we track here, the SOEs have some of the best earnings quality, ROAs, NIMs, and Debt/Equity levels.Fundamental trends at the banks that we analyse today are mostly benign. From our sample, we can ascertain fundamental progression in Capitalisation, headline Efficiency, and Provisioning levels. While Profitability is trending downwards, due to OPEX not adjusting to modest top-line growth in some cases or high asset write downs, NIMs have been generally holding up well. Headline Asset Quality has improved in general though Impairment growth can be worryingly elevated and bad loan migration through stages is a frequent issue as well as overexposure to commercial property at times. LDRs though are mostly heading in the right direction with Deposits expansion outpacing credit growth. A stable or improving scenario may not be the narrative for swathes of Chinese banks but it is generally the story for the majority of the 21 banks that we analyse here.We apply our PH Score value-quality gauge in combination with Fundamental Strength indicators and Valuation measures in order to establish the best opportunities as well as the greatest risks.While the dynamics of the numbers here are positive, we await a catalyst.

China Banks: Income Opportunities Compensate for Balance Sheet Risks.