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<Research>G Sachs Favors CN Banks Over Brokers in Financial Sector, Expects CN Banks to See 8% Growth in 1Q PPOP
Recommend 23 Positive 29 Negative 15 |
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Goldman Sachs has issued a report on Chinese financial stocks, in which it said preliminary 1Q26 results recently released by CICC (03908.HK) and CITIC SEC (06030.HK) showed revenue and profit significantly exceeding its expectations. CICC expected YoY net profit growth to reach about 65-90%, above the CITIC SEC's previous forecast of 27-46%, while CITIC SEC anticipated YoY net profit growth of 57%, exceeding the broker's expectation of 25%. Although some investors were constructive on Chinese brokers due to a recovery in Hong Kong's IPO market, Goldman Sachs held a different view. Within the financial sector, it preferred Chinese banks over brokers, mainly based on two factors: sustainability of earnings improvement and relative valuation. In Goldman Sachs' estimation, the average pre-provision operating profit (PPOP) growth of the Chinese banks under its coverage will reach 8% in 1Q26, rebounding significantly from -3% in 1Q25. Valuations were also attractive, with A-share and H-share stocks trading at 4.8x and 4.0x P/PPOP, respectively, and at 0.7x/0.6x P/B. In contrast, the three brokers (CICC, CITIC SEC, and GF SEC (01776.HK)) traded at an average H-share P/E ratio of 12x and P/B ratio of 1x, both above their historical median levels. Among the four major Chinese banks, Goldman Sachs still favored CCB (00939.HK) and BANK OF CHINA (03988.HK) due to their stable and higher-quality earnings growth. It will closely monitor earnings trends at ABC (01288.HK), particularly against the backdrop of relatively optimistic 1Q26 guidance from management, as well as progress in capital replenishment in 2026 and its impact on balance sheet strengthening. Earnings growth at CM BANK (03968.HK) will receive Goldman Sachs' attention as well. Given management's emphasis on a solid balance sheet, the likelihood of CM BANK raising provisions should be relatively low, and thus its earnings growth should theoretically outpace that of large state-owned banks. Auto-translated by AI AASTOCKS Financial News |
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