BOCI Securities: The market-to-book ratio of domestic banks is still low, the dividend yield is attractive, and the valuation may further increase, maintaining the overweight rating on H shares.

The Bank of China International has released a report, maintaining a positive rating on H-share Chinese banking stocks. Currently, the average price-to-book ratio of the H-share Chinese banking stocks covered by the brokerage is around 0.54 times (based on the expected price-to-book ratio for 2026), which is still at the lower end of the historical valuation range for this sector over the past 10 years. It is believed that investors will continue to pay more attention to the H-share Chinese banking sector this year, as it has a low valuation, solid fundamentals, and an expected dividend yield of around 5.46% for 2026, compared to yields of 1.29% for Chinese 1-year bonds, 1.81% for Chinese 10-year bonds, 1.5% for one-year RMB deposits in mainland China, and around 3% for one-year HKD fixed deposits in Hong Kong. Looking ahead to 2026, with policymakers likely to continue implementing loose monetary and active fiscal policies, long-term investors will continue to closely monitor the H-share Chinese banking sector. The brokerage firm recommends Industrial and Commercial Bank of China (01398) as the top choice within this sector, due to its relatively low valuation compared to its peers. Additionally, the brokerage also suggests investors consider buying shares of Agricultural Bank Of China (01288), China Merchants Bank (03968), China Construction Bank Corporation (00939), Postal Savings Bank Of China (01658), and China Everbright Bank (06818). In January of this year, H-share Chinese banking stocks underperformed the Hang Seng Index during the same period, with the Bank of China International attributing this to investors' enthusiasm for high-beta stocks (stocks with greater price volatility than the overall market). Looking ahead, it is believed that investment style may become more balanced in the future. In 2026, policymakers may continue to push for loose monetary and active fiscal policies, leading to a stable outlook for the Chinese banking sector. The brokerage firm expects profits within the sector to steadily increase, with good asset quality and stable dividends. The brokerage also mentions that due to the attractive dividend yield of Chinese banking stocks, valuations may further increase. With the forecast of deposit repricing and structural interest rate cuts, if a comprehensive interest rate cut of 10-20 basis points is implemented within the year, the net interest margin's annual decline will narrow to single digits, significantly improving from 2025. As the lower limit of the net interest margin gradually stabilizes and credit resources are accurately allocated to key areas, the resilience of the banking industry's profits will further strengthen.