China Construction Bank Maintains Solid Performance Despite Headwinds

Broker: UOB Kay Hian

Date: 31 March 2025

China Construction Bank (CCB), one of China’s leading state-owned banks, has delivered a robust performance in 2024, surpassing market expectations. The bank’s net profit grew by 0.9% year-over-year, driven by its resilient net interest margin (NIM) and strong trading gains, despite facing increasing pressure on the retail segment.

Key Highlights:

Resilient NIM amid Deposit Cost Reduction

– CCB’s NIM remained flat quarter-over-quarter at 1.48%, better than expected, as the bank was able to manage its deposit costs effectively. – While asset yield declined 15 basis points (bp) half-over-half due to mortgage repricing, the bank’s deposit cost reduction of 12bp helped offset the pressure on NIM. – Management expects the NIM compression to be smaller in 2025 compared to 2024, as the bank plans to enhance its liability structure and pricing system to support margins.

Tepid Fee Income but Stronger Trading Gains

– Fee income declined 5.1% year-over-year, despite improved market sentiment, as the bank faced challenges in certain business lines. – However, other non-interest income surged 38.0% year-over-year, boosted by Rmb4 billion in fair value gains from bond investments.

Stable Asset Quality, but Retail Segment Under Pressure

– The non-performing loan (NPL) ratio edged down 1bp quarter-over-quarter to 1.34%, with the corporate NPL ratio improving, while the retail NPL ratio rose 14bp. – Management remains confident about maintaining stable asset quality in 2025, despite the pressure on the retail segment.

Rmb105 Billion Capital Injection to Strengthen Capital Position

– The Ministry of Finance (MoF) will inject Rmb105 billion of new capital into CCB, resulting in a 4.3% equity dilution and a 50bp boost in the bank’s CET1 ratio to 15.0%. – The additional capital will help CCB mitigate ongoing NIM and asset quality pressure, spur credit growth, and achieve the stage-two total loss-absorbing capital requirement by 2028.

Earnings Revision and Valuation

– We have revised our 2025-2026 earnings forecasts upward by 0.8% and 1.5%, respectively, and introduced a 2027 earnings forecast of 5.0% year-over-year growth, driven by an expected NIM turnaround. – Maintaining a BUY rating, we have increased our target price to HK\$7.50, which implies a 0.52x 2025 price-to-book ratio, derived from the dividend discount model.
Overall, China Construction Bank has demonstrated resilience in the face of ongoing challenges, leveraging its strong deposit cost management and trading gains to offset the pressure on its retail segment. The bank’s recapitalization plan will further strengthen its capital position and support its growth aspirations.