China Merchants Bank Earnings: Net Profit Growth Turns Positive

We maintain our fair value estimate for China Merchants Bank at HKD 48 per H-share (CNY 45 per A-share) following its in-line third-quarter results. Year-to-date shareholders’ net profits contracted 0.6% year on year, but third-quarter net profit growth showed its first positive growth, rising 0.8% due to a narrowing in revenue contraction and improved operating efficiency. We expect revenue pressure to ease further in the fourth quarter and maintain our full-year revenue projection of negative 2% growth and our 2024 net profit growth at 1%. CMB’s H-shares appear undervalued, trading at around 0.9 times 2024 book value, with most risks already priced in. We consider CMB to be one of our preferred China banks. Given its high earnings sensitivity to the economic cycle, it stands to benefit from recent government efforts to boost the capital market. Additionally, CMB has increased dividend payments consistently over the past decade.