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China Banks: Opportunities among the credit quality challenges
Financials
Victor Galliano screens 10 China banks, including the “Big Four”, using his proprietary database to build bank metrics up-to the 2Q24 results season. He examines the banks’ core profitability and their credit quality metrics to better identify banks that are attractive value, have good earnings growth prospects and have the potential to deliver healthy returns, even in the face of a potentially tough credit quality cycle in China. China Construction Bank is a core GEM bank Buy for its deeply discounted valuations and strong balance sheet; Ping An Bank is the deep value contrarian pick; China Minsheng Banking is Victor’s fundamental Sell.
China Banks: Deep value despite the NPL challenge
Financials
In Victor Galliano’s China banks screen, he focuses on the credit quality headwinds going forward, as well as the returns trends that can absorb potentially worsening cost of risk charges. While China bank shares continue to be poor performers, Victor sees selective contrarian buy opportunities for those banks with deeply discounted valuations and strong balance sheets including credit quality metrics. He upgrades Ping An Bank to Buy and continues to favour Industrial Bank and CCB, although Minsheng remains a Sell.
Financials
On the back of 2Q22 results, Victor Galliano screens 9 large Chinese commercial banks’ core profitability, and their credit quality and coverage, to identify banks that are attractive value, have good earnings growth prospects and have the potential to deliver sustainably higher returns going forward. Ping An Bank stands out on valuation (especially PEG ratio). Victor believes that its returns could improve over the medium term especially from lower cost of risk given its credit quality strength. He also retains a positive view on CCB. However, Victor is negative on China Minsheng due to its low ROE, poor delinquency and NPL coverage.
Chinese Banks: Focusing on the credit quality challenge
Financials
Victor Galliano conducts a credit quality review of eleven Chinese banks in the light of the Evergrande and real estate sector headwinds - he also assesses the banks’ profitability ratios and their capacity to absorb increasing credit losses. Victor considers the best placed banks to be China Merchants Bank and PSBC; the most exposed to further credit quality deterioration are China Minsheng Bank and China CITIC Bank.
