Zhongtai: Wealth management continues to exert force, maintaining China Merchants Bank (03968) with a "buy" rating.

Zhongtai released a research report stating that China Merchants Bank (03968) has gradually accumulated a "moat" in the retail and wealth management track; it is rare in the banking industry to have an "enterprise culture" that is internally market-oriented and externally customer-oriented; it has formed a team of hardworking, professional, and upright middle and senior management and business leaders. These underlying values have not changed, and it remains an outstanding bank in the industry, worthy of long-term holding. The company's estimated PB ratios for 2026E, 2027E, and 2028E are 0.82X, 0.74X, and 0.68X respectively; PE ratios are 6.25X, 6.10X, and 5.95X. The rating is maintained at "hold". Zhongtai's main points are as follows: Improving performance marginally, supported by interest income and fees. In 1Q26, CMB's revenue increased by +3.8% year-on-year (compared to a year-on-year decline of -0.1% in 2025), with net profit up by +1.5% year-on-year (compared to +1.2% in 2025), showing a slight improvement in net profit growth. Net interest income increased by +5.0% year-on-year and +3.0% quarter-on-quarter, with the net interest margin per day for the quarter decreasing by 3bp to 1.83%, and increased support on the liability side. The quarterly annualized return on interest-earning assets decreased by 8bp to 2.84%, while the quarterly annualized interest-bearing debt payment rate decreased by 6bp to 1.07%. Asset-liability growth and structure: Loan and deposit growth remained stable. (1) On the asset side, interest-earning assets increased by +9.2% year-on-year in 1Q26 (compared to +6.7% in 2025); total loans increased by 5.0% year-on-year (compared to 4.3% in 2025); bond investments increased by +16.4% year-on-year (compared to +15.9% in 2025). (2) On the liability side: interest-bearing liabilities increased by 9.5% year-on-year, with total deposits increasing by 9.1% year-on-year. Deposit growth outpaced loan growth, slightly lower than the growth of interest-bearing liabilities. As of 1Q26, the credit growth situation in different industries (based on the parent company's criteria) remained high in the corporate sector, with consumer loans and micro-loans achieving positive growth year-on-year. Specifically, in the corporate sector, corporate loans increased by +13.6% year-on-year, with general credit, manufacturing, bulk retail, and information technology industries increasing by +12.1%, +15.8%, +29.5%, and +16.4% respectively, while the real estate sector saw a slight decline of -1.2% year-on-year. In the retail sector, retail loans increased by +0.6% year-on-year, with mortgages, credit cards, consumer loans, and micro-loans decreasing by -1.7%, -1.8%, +4.5%, and +5.9% respectively. As of 1Q26, in terms of new loans by sector (based on the parent company's criteria), general credit, manufacturing, and bulk retail industries accounted for the top three. The proportion of new corporate, retail, and bills loans was 105:0.2:-5.2, with the top three industries in terms of new loans being general credit (31.5%), manufacturing (31.1%), and wholesale retail (19.9%). As of 1Q26, deposit growth and structure (based on the group's criteria): Corporate demand deposits decreased by -1.5%, while individual demand deposits increased by +2.9%. Demand deposits accounted for 50.4% in 1Q26, a slight decrease of 0.4 percentage points quarter-on-quarter, with personal demand deposits increasing slightly and corporate demand deposits decreasing slightly. The decrease in non-interest income narrowed, while fee income growth expanded. Net non-interest income increased by +1.7% year-on-year, with fee income increasing by +4.9% year-on-year, including wealth management fee income increasing by +25.4%. On the other hand, net other non-interest income accumulated year-on-year was -5.0%, a narrower decline compared to -16.6% in 2025. Overall asset quality (based on the group's criteria): Overall stability, with non-performing loan ratio unchanged year-on-year. The NPL ratio in 1Q26 was 0.94%, unchanged from the previous quarter and the beginning of the year. The quarterly annualized net NPL generation rate increased by 9bp year-on-year. The overdue ratio decreased by 3bp to 1.21% quarter-on-quarter, with loans overdue for more than 3 months accounting for 0.75% of total loans, up by 4bp quarter-on-quarter. The NPL coverage ratio was 387.76%, down by 4 percentage points quarter-on-quarter, but still at a high level. The loan loss reserve ratio was 3.63%, down by 5bp quarter-on-quarter. Asset quality in various business lines (based on the parent company's criteria): Improvements in the corporate sector, with the NPL ratio decreasing by 6bp to 0.78%, maintaining a downward trend on a low base; the percentage of watch-list loans remained the same; the overdue rate increased by 8bp to 0.85%. Specifically, the balance of corporate real estate loans amounted to 283.7 billion RMB, accounting for 4.00% of total corporate loans and advances, a decrease of 10bp quarter-on-quarter. The NPL ratio for corporate real estate loans decreased by 20bp to 4.44% quarter-on-quarter, and by 35bp year-on-year. In the retail sector, the NPL ratio increased by 6bp to 1.14%, but remained relatively low. The NPL ratios for micro-loans, mortgages, credit cards, and consumer loans changed by -7bp, +7bp, +16bp, and +15bp respectively. Risk warning: Economic downturn beyond expectations, company operations falling below expectations, delay in updating research information.