Large investors still prefer China Merchants Bank

Ask AI · Ping An Life’s Fourth Purchase of Bank of Communications H-shares: What Are They Interested In?

Author | Wang Hanyu

Editor | Zhang Fan

Cover Source | Visual China

Compared to the glorious period when it was crowned the “Retail King” with soaring valuations, China Merchants Bank has been notably dull in recent years. While banking stocks as a whole have risen, China Merchants Bank’s share price has performed relatively flat, ranking at the bottom among large banks.

Previously, on November 21, 2022, CSRC Chairman Yi Huiman first proposed “exploring the establishment of a valuation system with Chinese characteristics” at the Financial Street Forum Annual Conference, bringing the concept of “China-specific valuation” into the capital market’s view. By 2023, with the State-owned Assets Supervision and Administration Commission promoting SOE reform, coupled with the background of declining interest rates and the increasing value of high-dividend, low-valuation central and state-owned enterprises, the “China-specific valuation” and “dividend strategy” began to deeply integrate.

During this period, commercial banks, as typical “dividend stocks,” began to see valuation increases.

Taking the Big Four—ICBC, ABC, BOC, and CCB—as examples, from November 21, 2022, to now (March 27), their A-share stock prices have risen by 111.13%, 176.85%, 110.71%, and 117.78%, respectively, with annualized returns of 25.91%, 36.88%, 25.83%, and 27.12%.

In contrast, China Merchants Bank, also a major bank, has performed modestly in the capital market. Its A-share stock price has only increased by 47.26%, with an annualized return of 12.67%.

As of March 27, the P/E ratio and P/B ratio of CMBC’s A-shares have fallen to recent lows, at 6.62 times and 0.93 times, respectively, significantly narrowing the valuation gap with the Big Four. Once a “retail benchmark,” why has it stopped rising?

Cycle Reversal: From Valuation Expansion to Valuation Reversion

Looking back at the “China-specific valuation” rally, the period from mid-2017 to mid-2021 was when China Merchants Bank’s valuation soared.

Wind data shows that the valuation uplift of China Merchants Bank’s A-shares began around May 2, 2017, and lasted until May 31, 2021. During this period, its stock price increased by 243.86%, with an annualized return of 36.43%. Meanwhile, the Big Four’s overall performance was stable with less volatility.

At that time, against the backdrop of financial deleveraging and homogeneous competition in the banking sector, CMBC leveraged its forward-looking retail strategy to become the first domestic commercial bank where retail profit accounted for over half of total profits, earning the title “Retail King.” Coupled with leading wealth management services and asset quality, it created a scarce bank target in the market, resulting in a significant valuation premium.

The “Retail King” image also led to CMBC being viewed as the most similar target in China’s banking industry to Wells Fargo, which Warren Buffett has long held a large stake in: both focus deeply on retail business, have low-cost core deposit bases, excellent risk pricing capabilities, and a track record of earnings through cycles.

Therefore, investors are more willing to refer to Buffett’s valuation logic for excellent banks, paying a premium for this scarcity and profitability.

Data reflects that CMBC’s P/B ratio has long been above 1.5 times, once exceeding 2 times, while the Big Four’s P/B ratios mostly hovered between 0.5-0.8 times, with a large valuation gap.

This essentially indicates that the market believes CMBC’s retail business model is superior, with higher growth certainty and stronger profitability, justifying a premium.

However, since 2022, the situation has begun to reverse. The macro economy and real estate market entered a deep adjustment phase, household balance sheets came under pressure, and CMBC, closely tied to retail business, started to see valuation corrections in the second half of that year.

Additionally, leadership changes within the bank have intensified this trend. On April 18, 2022, CMBC announced the removal of Tian Huiyu from the positions of President and Director. On April 22, the Central Commission for Discipline Inspection and National Supervisory Commission disclosed that Tian Huiyu was under disciplinary review and investigation for serious violations of discipline and law.

Within five trading days from April 18-22, 2022, CMBC’s A-shares fell by a total of 9.25%.

By late November of that year, driven by “China-specific valuation” and “dividend stock” logic, state-owned large banks with stable operations, high dividend payout ratios, and closer ties to macroeconomic “steady growth” became favored by risk-averse funds, and valuations began to recover.

Up to now (as of March 27), the A-shares of the Big Four have increased by over 100%, while CMBC’s increase is less than 50%.

CMBC shifted from a growth premium logic to a valuation more closely related to common risks such as real estate and retail asset quality, leading to a downward reversion of valuation.

Currently, CMBC’s A-share P/B has fallen to about 0.9 times, narrowing the gap with some state-owned banks to a historic low, experiencing valuation compression and a move back toward industry averages.

The “Retail King” Halo Fades

“Retail King” was once the most prominent label for CMBC, but now it faces a test of market trust. Previously, high valuation was justified by expectations of high growth, low volatility, and weak cycle sensitivity from retail business. But the current environment has profoundly changed this narrative.

First, CMBC’s revenue and net profit attributable to shareholders growth rates have fallen back to single digits or even negative in 2022 and 2023. This partly indicates that the “safe harbor” effect of retail business is weakening.

Typically, weakening household income expectations will directly lead to sluggish retail credit growth, with asset quality pressures emerging in credit cards, consumer loans, and other assets.

For example, in 2025, CMBC’s net interest margin is projected at 1.87%, down 11 basis points year-on-year; the yield on interest-earning assets has decreased by 46 basis points. Besides the main reasons such as LPR cuts and mortgage rate reductions, this also reflects insufficient effective credit demand, especially for retail loans, and pressure on new loan pricing.

Source: Galaxy Securities Research Report

Second, recent market volatility has reduced customer investment willingness and risk appetite. Meanwhile, regulatory reforms, such as lowering commission rates, have further impacted the banking industry, which faces a slowdown in fee income growth before 2024.

Wealth management and intermediary services are highly dependent on retail customer scale and assets under management (AUM). As a result, banks like CMBC, which excel in retail, have seen a more pronounced decline in fee income, further dragging down non-interest income growth.

Analyzing financial data since 2022, CMBC’s non-interest income growth has been negative over the long term. Although there has been some market recovery since 2024, the bank’s business recovery remains limited, indicating it may be difficult to return to previous high-growth levels in the short term.

By 2025, CMBC’s non-interest net income is expected to decline by 3.38% year-on-year to 121.94B yuan. However, net fees and commissions of 75.26B yuan have increased by 4.39%, further improving compared to the first three quarters of last year. This mainly reflects growth in wealth management and asset management service fees.

Source: Galaxy Securities Research Report

Furthermore, risks in corporate real estate also influence investor perceptions of CMBC’s asset quality. Although the proportion of corporate real estate loans has continued to decline, existing risks remain exposed. Concerns about whether provisions for bad debts are sufficient and whether risks will further transfer to retail mortgage portfolios are reflected in cautious valuation attitudes.

In other words, investor sentiment is shifting from focusing on retail’s future growth to examining retail’s resilience in countercyclical conditions.

Steady Retail Fundamentals, Long-term Capital Favorability

Setting aside the market’s changing valuation attitude toward “retail benchmarks,” CMBC’s core advantages remain solid.

In terms of revenue and net profit growth, despite some slowdown compared to previous years, CMBC still outperforms most state-owned banks.

Key indicators show that by 2025, CMBC’s average cost of interest-bearing liabilities will further decrease by 38 basis points year-on-year; its net interest margin is projected at 1.87%, higher than the 1.2%-1.66% range of ICBC, CCB, Bank of China, and Bank of Communications; non-interest income accounts for 36.1%, higher than less than 30% for CCB and other state banks.

Regarding retail banking fundamentals, CMBC’s retail customer base, Gold Sun (Jin Kuihua) and above clients, and AUM continue to grow positively and lead the industry. As of the end of Q3 2025, retail customers increased by 4.8% from the start of the year to 220 million; AUM grew by 11.2% to 16.6 trillion yuan.

Data source: CMBC annual and quarterly reports; Chart: 36Kr

By the end of 2025, retail customers are expected to further increase to 224 million, with AUM surpassing 17 trillion yuan. Gold Sun and above clients, as well as private banking clients, are close to 5.94 million and 200k, respectively, with growth rates of 13.3% and 17.9%, the highest in nearly four years.

In the current environment of a recovering capital market and banks gradually adapting to financial reforms, CMBC’s advantage in large retail clients is expected to re-emerge.

From a long-term investor perspective, a clear signal is that Ping An Life has made its fourth purchase of CMBC H-shares within 2025. By the end of 2025, Ping An Life holds about 922 million H-shares, accounting for over 3.65% of the bank’s total share capital, with a market value exceeding HKD 44.4 billion.

This indicates that, after valuation adjustments, insurance capital prioritizes safety and stable returns, considering CMBC as a long-term allocation candidate.

It is worth noting that, whether in terms of share price, PE, or PB levels, CMBC’s H-shares still trade at a premium compared to A-shares. However, Ping An Life’s continued accumulation of H-shares may be based on a comprehensive judgment of its own funding costs, exchange rate considerations, and the liquidity characteristics of the Hong Kong market.

On the other hand, the trend of asset quality indicators such as non-performing loan ratio and loan loss reserves ratio is also under stricter market scrutiny.

Financial reports show that by the end of 2025, CMBC’s non-performing loan balance was 166k yuan, an increase of 170k yuan from the previous year; the NPL ratio was 0.94%, down 0.01 percentage points; special mention loans accounted for 1.43%, up 0.14 percentage points from the start of the year.

Among them, corporate NPL ratio was 0.89%, down 0.17 percentage points; retail NPL ratio was 1.06%, up 0.10 percentage points.

Source: Galaxy Securities Research Report

Dissecting CMBC’s current valuation dilemma, it results from the overlay of its business cycle and the macroeconomic cycle. The transition from the “Retail King” high-growth halo to a more scrutinized stance is not a loss of advantage but a market reassessment amid adverse conditions.

In the future, under the overall challenge of net interest margin compression in the banking industry, how CMBC manages to smoothly resolve existing risks, effectively control the rising credit costs of retail loans in the economic cycle, and find a second growth curve through wealth management transformation will be key to its profitability stability and valuation recovery.

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