Date: September 27, 2024
Broker Name: CGS International Securities

Overview

China CITIC Bank is one of the leading state-owned banks in China, and its performance is tied closely to the policies set by its parent company, CITIC Group, a major central SOE (State-Owned Enterprise). In this report, CITIC Bank is highlighted as having strong potential for growth, driven by government focus on enhancing Return on Equity (ROE) and market value management as key performance metrics for non-financial SOEs.

ROE Performance

China CITIC Bank is expected to benefit more than its peers from the increased focus on ROE, which is being promoted by policymakers for SOEs. This strategic emphasis on ROE could improve the bank’s overall performance, particularly as its parent, CITIC Group, is a central SOE. The bank’s FY24F P/E ratio of 3.21x and a price-to-book value (P/BV) ratio of 0.34x reflect its strong position within the market, suggesting it is undervalued relative to its earnings potential.

Key Financial Metrics

• P/E Ratio (Dec-24F): 3.21x
• P/BV Ratio (Dec-24F): 0.34x
• Dividend Yield (Dec-24F): 8.73%
• Projected Dividend Yields:
  • FY24F: 8.73%
  • FY25F: 9.45%
  • FY26F: 10.76%

These figures indicate strong dividend growth expectations, with a potential increase of over 2% by FY26F, reflecting the bank’s robust cash flow and earnings outlook.

Market Position

China CITIC Bank has been positioned as one of the top picks within the financial sector due to its focus on ROE improvement and market value management. The focus on these metrics aligns with broader government objectives, which include bolstering the performance of state-owned enterprises through financial metrics such as ROE and market valuation. This focus could significantly improve investor confidence and lead to a higher share price in the future.

Sector Context and Outlook

In the context of the Chinese banking sector, China CITIC Bank’s performance is seen as relatively stable, with its ROE expected to be a key differentiator in the coming years. The report also highlights the potential of a RMB1 trillion capital injection into China’s six SOE banks, including CITIC Bank. This injection could be leveraged by over 12 times to help fund RMB12 trillion of new loans. However, questions remain about execution and how effectively these funds will be used to stimulate loan growth.

Conclusion

CGS International maintains an “Add” recommendation for China CITIC Bank with a target price of HK$5.60, reflecting a 13% upside from its current trading price of HK$4.95 as of September 27, 2024. The bank’s attractive valuation metrics, coupled with the government’s focus on ROE and market value management, position it well for future growth and returns.