Shenwan Hongyuan Securities·2025-06-09 06:12Core Insights - The banking sector has experienced a significant valuation recovery since the end of 2023, with a cumulative increase of 55% in 2024, driven primarily by valuation recovery (approximately 43%) and profit growth (approximately 9%) [4][11][12] - The market has historically undervalued banks, leading to a mismatch between their stable performance and low valuations, which presents a systemic revaluation opportunity [4][11] - The report emphasizes the importance of long-term investment in banks, highlighting that stable returns are more critical than short-term growth during economic transitions [4][25] Investment Analysis - The report suggests focusing on banks with strong regional beta and stable profit growth expectations, such as Chongqing Bank, Suzhou Bank, and Chengdu Bank, as well as large state-owned banks like Agricultural Bank of China [4][45] - The influx of insurance funds into high-dividend banks is expected to drive approximately 200 billion yuan in incremental capital into the banking sector from 2025 to 2027 [4][20] - The average return on equity (ROE) for banks is around 10%, which is among the top five sectors in the market, while the price-to-earnings (PE) ratio is approximately 6 times, the lowest in the market, indicating a potential for systemic revaluation [4][12][48] Market Dynamics - The banking sector's valuation recovery began with the "special valuation" approach and was supported by high dividend yields, reflecting a shift in investor focus from growth to stable returns [4][11][12] - The report notes that the banking sector's average dividend yield is approximately 4.5%, significantly higher than the yield on ten-year government bonds, indicating a strong return advantage in a low-interest-rate environment [46][48] - The report highlights that the market has often overestimated risks associated with banks, leading to a premature reflection of pessimistic expectations in stock prices [4][25][48] Sector Performance - The report identifies that the banking sector has outperformed the broader market indices, with the banking index rising significantly compared to the CSI 300 index [11][12][35] - It emphasizes that the performance of banks is not solely dependent on economic recovery but also on the stability of their earnings and the ability to manage risks effectively [4][25][48] - The report indicates that the market's perception of banks has been overly cautious, with many investors underestimating the banks' capacity to maintain stable performance amid economic challenges [4][25][48]