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Key Research Idea

Bank of China (3988 HK / 601988 CH) – Muted growth  

Recent quarterly results highlighted BOC has weaker operating metrics with net interest margin (NIM) and growth in pre-provision operating profit, fee income & deposit were lower than its peers. While asset quality remained stable, non-performing loan coverage ratio and capital position were lower than its peers.
We believe NIM could be under pressure as economic growth softens & policymakers are likely to maintain a relatively lower loan pricing and could fine-tune policy to support growth. BOC-H is trading close to tough valuation of 0.33x (3988 HK) / 0.44x (601988 CH) forward Price-to-Book and offering close to 9% (3988 HK) / 7% (601988 CH) FY21e dividend yield, which could support share price performance till ex-div & would be appealing to income-oriented investors. With its softer than peers operating metrics, we see limited positive catalysts for re-rating. We maintain our Fair Value estimate at HKD3.3 (3988 HK) / CNY 3.6 (601988 CH) by rolling over our estimates and a valuation multiple of 0.4x(3988 HK) / 0.53x (601988 CH) forward Price-to-Book, which implies -1s.d. to historical average. Within Chinese banks, we maintain our preference to those with strong retail network and franchise which could benefit from structural growth opportunities from retail banking and wealth management. BUY(Research Team)