德银：中国城市商业银行深度报告

GEMS:AsiaChinaBanking/FinanceBanks28September2007China'scitycomm'lbanksFishinginthebigpondSandyHu,BAResearchAnalyst(852)[e-mail],CFAResearchAnalyst(852)[e-mail]thepartyWeseeChina'scitycommercialbanks(CCBs)asanemergingforceintheChinesebankingspace.Althoughsmall,comparedtootherstate-ownedbanks(SOBs)andjoint-stock-commercialbanks(JSCBs),CCBs'influenceontheindustry'slandscapeandcompetitivedynamicswillbecomeincreasinglymeaningfulinthenext2-3years,inourview.ThiswillbedrivenbyCCBs'newaccesstocapitalmarketsandgradualliberalisationontheirbusinessscope.DeutscheBankAG/HongKongAllpricesarethosecurrentattheendoftheprevioustradingsessionunlessotherwiseindicated.PricesaresourcedfromlocalexchangesviaReuters,Bloombergandothervendors.DataissourcedfromDeutscheBankandsubjectcompanies.DeutscheBankdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Thus,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.Independent,third-partyresearch(IR)oncertaincompaniescoveredbyDBSI'sresearchisavailabletocustomersofDBSIintheUnitedStatesatnocost.CustomerscanaccessthisIRat(1398.HK),HKD5.43BuyChinaConstructionBank(0939.HK),HKD7.11BuyIndustrialBank(601166.SS),CNY54.48BuyCompaniesfeaturedICBCLtd.(1398.HK),HKD5.43Buy2006A2007E2008EP/E(x)23.423.317.8Divyield(%)2.52.83.7Price/book(x)3.63.63.4ChinaConstructionBank(0939.HK),HKD7.11Buy2006A2007E2008EP/E(x)17.523.419.1Divyield(%)2.51.92.4Price/book(x)3.54.33.8ChinaMerchantsBank-H(3968.HK),HKD32.45Hold2006A2007E2008EP/E(x)26.435.826.4Divyield(%)0.90.81.3Price/book(x)4.57.46.3IndustrialBank(601166.SS),CNY54.48Buy2006A2007E2008EP/E(x)–32.725.6Divyield(%)–0.81.0Price/book(x)–7.36.0OverallROAofCCBs0.330.370.510.650.700.000.100.200.300.400.500.600.700.8020022003200420052006(%)OverallCARofCCBs-0.2%1.4%2.8%8.5%-2%0%2%4%6%8%10%2002200420052006CCBs'assetmktshr&annualgth54.953.652.551.313.914.915.516.35.35.45.45.926.226.226.626.60204060801004Q034Q044Q054Q06051015202530OtherFisCCBsJSCBSOBCCBs'astgth(RHS)(Mktshr%)(yoy%)FastestgrowingbankingsegmentinChinaCCBsareoftentermedasChina’sthird-tierbankingsegment,withpoorassetquality,insufficientcapitalandrelativelylimitedscopeofoperation.Afteraseriesofrestructuringsandcapitalinjections,thesegmenthasoutpacedJSCBstobecomethefastest-growingbankinggroupinChina.Totalassetslastyearsurged27.4%yoytoRMB2.59tr,comprising5.9%oftotalbankingassets.ConsolidationdowntheroadWith114CCBsscatteredaroundthecountry,thegovernmenthasbeenencouragingfurtherconsolidationinthisover-segmentedgroup.PotentialtakeovertargetsareexpectedtoreceivemountinginterestfromJSCBs,foreignbanks,insurancecompaniesandeventheirowncitycommercialbankpeers.Thissegment,inourview,willbeatthecenterofamajorityofM&Aactivitiesinthecomingyears.Acherry-pickinggameCCBsasagrouphavewitnessedremarkableimprovementinprofitabilityandassetquality.WeexpectnewIPOstofloodthecapitalmarketsinthenext2-3years.However,giventhewidespectrumintermsofperformanceandqualitywithinthegroup,investorsneedtotakeaveryselectiveinvestmentapproach.Wehavelistedseveralkeyindicatorstoidentifypotentialwinnersinthelongrun.Wehavealsocollatedinformationoneightmajorcitycommercialbanksincludingkeyfinancialdata,strategicinvestorintroduction,potentialcapitalraising,networkexpansionplanandcompanybackground.Longer-termindustryimplicationsInthelongerterm,weexpectthatSOBswillbelargelyimmunefromdirectcompetitionwithCCBsgiventheirscaleadvantage.MostJSCBsarelikelytobesqueezedfromthetop(recapitalisedSOBswithmorenimblestrategyandbetterriskappetite)andfromthebottom(enlargedCCBswithcontinuedpenetrationintolocalcustomers).TheexceptionsareIndustrialBank(Buy),thankstoitsSMEfocus,andChinaMerchantsBank(Hold)whichalreadyownsawell-establishedretailbankingfranchise.Near-terminvestmentrecommendationInthenearterm,wecontinuetolikebiggerbanks,includingICBC(Buy)andCCB(Buy),whichwillbenefitfromrisingassetyieldinatighteningenvironment.WehaveturnedmorecautiousonJSCBs,includingChinaMinshengBank(Hold),ShanghaiPudong(Hold)andChinaCITICBank(Hold),giventheirrisingfundingcostandhighervaluations.CompanyGlobalMarketsResearch28September2007BanksChina'scitycomm'lbanksPage2DeutscheBankAG/HongKongTableofContentsNextstageofbankreforms..............................................................3Long-termsectorimplications..................................................................................................3Near-terminvestmentrecommendation...................................................................................3Emergingcompetitorstotheparty.................................................5ThefastestgrowingbankinggroupinChina.............................................................................5Simplereformagenda......