The author is Michael Werner, senior research analyst covering the Chinese and Hong Kong banks at Sanford Bernstein & Co.
CITIC Bank’s profitability has lagged peers’ leading to the weakest valuation in the group.
New management appointed in late 2012 have adopted ambitious strategies to address CITIC’s shortcomings, such as the lack of retail franchise and the focus on state-owned enterprises.
We put just a 10% to 20% chance that the bank will execute these new strategies successfully due to regulatory restrictions and peer competition.
Thus, the bank will remain poorly positioned for the financial reforms we expect in China in the coming years.
The bank’s need to raise capital and its acceleration of provisioning will act as 4% to 8% annual earnings headwinds in the coming years.
We believe a 0.7 times book value multiple is justified and consider a rating upgrade unlikely.
(The article has been edited for clarity)