China Citic Bank - Asset quality improvement overlooked by the market

DBS Group Research reiterates a BUY rating on China CITIC Bank (0998.HK) with a price target of HK$5.00. The investment thesis centers on the bank's successful efforts to clean up historical non-performing loans (NPLs) and its structural improvements in asset quality, which the market has largely overlooked. CITIC has proactively reduced its exposure to high-risk sectors like China's property market, resulting in a more resilient risk profile compared to peers. The bank's NPL ratio dropped to 1.21% in 1Q23, the strongest improvement among peers, and new NPL formation has also decreased. DBS expects this trend of improving asset quality to continue. They project an 8% earnings CAGR for FY22-25, driven by steady loan demand, lower credit costs, and stabilizing net interest margins (NIM). The stock is considered attractively valued at 0.3x FY23F P/B with a high dividend yield of around 10.5%. Key risks include a weaker-than-expected Chinese economic recovery, potential asset quality deterioration, and slower fee income growth.