中国城市商业银行研究XXXX1122

AsiaChinaBanking/FinanceBanks22November2010ChineseBanksCitycommercialbanksarethebestproxyoftier1citiesJudyZhangResearchAnalyst(+852)[e-mail]t(+852)[e-mail]/HongKongAllpricesarethosecurrentattheendoftheprevioustradingsessionunlessotherwiseindicated.PricesaresourcedfromlocalexchangesviaReuters,Bloombergandothervendors.DataissourcedfromDeutscheBankandsubjectcompanies.DeutscheBankdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Thus,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.DISCLOSURESANDANALYSTCERTIFICATIONSARELOCATEDINAPPENDIX1.MICA(P)007/05/2010FITTResearchFundamental,Industry,Thematic,ThoughtleadingDeutscheBankCompanyResearch'sInvestmentPolicyCommitteehasdeemedthisworkF.I.T.T.forinvestorsseekingdifferentiatedideas.WebelievethecitycommercialbankswithsignificantpresenceintheirincumbentmarketswillbenefitdisproportionatelyfromthegrowthofChina'stier1citieswiththeirsubstantialbusinessactivity,thehighloangrowthpotential,withabetteranduniformcreditcultureandhighdemandfornon-creditfinancialserviceswilldrivefutureprofitgrowth.WeinitiateonthreecitycommercialbankswithBOBJasourtoppick.Fundamental:City-centricbusinessmodelswilldriveabove-marketgrowthIndustry:LocalknowledgeandefficiencyarecompetitivedifferentiatorsThematic:ThreelistedcitycommercialbanksaretopofleagueThought-leading:DetailedcomparativeanalysisoncitycommercialbanksToppick:BankofBeijing(BOBJ)CompanyGlobalMarketsResearchAsiaChinaBanking/FinanceBanks22November2010ChineseBanksCitycommercialbanksarethebestproxyoftier1citiesJudyZhangResearchAnalyst(+852)[e-mail]t(+852)[e-mail],Industry,Thematic,ThoughtleadingDeutscheBankCompanyResearch'sInvestmentPolicyCommitteehasdeemedthisworkF.I.T.T.forinvestorsseekingdifferentiatedideas.WebelievethecitycommercialbankswithsignificantpresenceintheirincumbentmarketswillbenefitdisproportionatelyfromthegrowthofChina'stier1citieswiththeirsubstantialbusinessactivity,thehighloangrowthpotential,withabetteranduniformcreditcultureandhighdemandfornon-creditfinancialserviceswilldrivefutureprofitgrowth.WeinitiateonthreecitycommercialbankswithBOBJasourtoppick.DeutscheBankAG/HongKongAllpricesarethosecurrentattheendoftheprevioustradingsessionunlessotherwiseindicated.PricesaresourcedfromlocalexchangesviaReuters,Bloombergandothervendors.DataissourcedfromDeutscheBankandsubjectcompanies.DeutscheBankdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Thus,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.DISCLOSURESANDANALYSTCERTIFICATIONSARELOCATEDINAPPENDIX1.MICA(P)007/05/2010FITTResearchToppicksBankofBeijing(601169.SS),CNY12.32BuyCompaniesfeaturedBankofBeijing(601169.SS),CNY12.32Buy2009A2010E2011EP/E(x)16.510.28.4Divyield(%)1.22.43.0Price/book(x)3.21.71.5BankofNanjing(601009.SS),CNY11.78Buy2009A2010E2011EP/E(x)14.112.111.2Divyield(%)0.81.01.3Price/book(x)2.21.81.6BankofNingbo(002142.SZ),CNY12.70Sell2009A2010E2011EP/E(x)20.015.012.7Divyield(%)1.72.22.8Price/book(x)4.52.32.0Fundamental:City-centricbusinessmodelswilldriveabove-marketgrowthChina’scitycommercialbanksachievedFY07-09NPATCAGRof41%,whichwastwiceasfastastheChinesebankingsector’saverageCAGRof22%.Thissuperiorprofitgrowthwasdrivenbystrongerloangrowth(27.3%versusthebroadersector’s19.8%),higherloan-to-depositspreadsof5.1%(sector:4.48%)andnormalcreditcostsof65bps.Weexpectthecity-centricfocustocontinuedrivingthehighestgrowthpotentialandearningsvisibilitywithinthesector.Industry:LocalknowledgeandefficiencyarecompetitivedifferentiatorsWebelievecitycommercialbanksdifferfromotherbankswiththeirstrong,andinsometimesexclusive,tiestolocalgovernmentsandcorporationsintheirdomesticmarkets(whicharedifficultfornewentrantstoreplicate).Theserelationshipsoftenresultinstrongerdepositgrowth,lowerloan-to-depositratios(top20banks:63.5%),higherloanpricingpowerandmorepredictablecreditcosts.Also,thesebanks(non-SIB)aregenerallywellcapitalizedwithhighoperatingefficiencyandarethereforelessvulnerabletopotentialpolicyheadwinds.Thematic:ThreelistedcitycommercialbanksaretopofleagueAmongstthe143citycommercialbanks,wepreferthethreelistedcitycommercialbanks(BankofBeijing,BankofNanjingandBankofNingbo)andsomeunlistedbanksinShanghai,Tianjin,Chongqing,HangzhouandHuishang,astheyarelargerintermsofassetsizewithleadingpositionsintheirhomemarkets.Forthethreelistedbanks,webelievetheirlowLDR(64%),highoperatingefficiency(37.5%CIR)andthehightier1ratio(10.1%)shouldsupportcontinuedexpansionandenablethemtocapturethegrowthpotentialinChina’stoptier1cities.Thought-leading:DetailedcomparativeanalysisoncitycommercialbanksOurcomprehensivestudyonthetop20ofthe143citycommercialbanksshowsthathomemarketlocation,scaleandeffi