Changjiang Securities·2025-07-06 09:42Core Insights - The banking sector is currently undergoing a trend of value reassessment, driven by expectations of fundamental stability, with banks' earnings resilience consistently exceeding expectations due to regulatory support and the establishment of risk bottom lines in key areas such as local government financing and real estate [4][8] - The current market rally is fundamentally a reflection of the stability of the banking sector rather than a reliance on macroeconomic recovery, marking a systematic value reassessment and correction of historically unreasonable low valuations [8][23] Summary by Sections Fundamental Outlook: Maintaining Earnings Stability - The net interest margin (NIM) is expected to stabilize as regulatory policies aim to maintain it by reducing banks' funding costs to offset the impact of loan interest rate cuts, with NIM currently at a low point [9][26] - Since 2022, multiple rounds of deposit rate cuts have been implemented, and as a significant amount of fixed-term deposits mature in 2025, the repricing of deposit costs will accelerate [9][26] - The overall non-performing loan (NPL) ratio of listed banks is expected to remain stable, supported by rapid asset expansion and write-offs, with a stable provision coverage ratio across most banks [9][37] Capital Market Dynamics: Increased Institutional Investment - Various capital entities, including state-owned enterprises and insurance companies, have been increasing their holdings in bank stocks, driven by the value reassessment of undervalued banks amid an asset scarcity environment [10][45] - The shift in investment strategy among active funds towards bank stocks is anticipated due to their significant index weight and long-standing underallocation, with a focus on quality banks with strong fundamentals [10][45] Investment Recommendations - The report recommends focusing on high-quality city commercial banks and dividend-paying banks, highlighting the investment value of state-owned banks listed in Hong Kong due to their lower valuations [11][10] - Specific banks recommended include Hangzhou Bank, Chengdu Bank, Jiangsu Bank, Qilu Bank, and Qingdao Bank, with a focus on their regional economic performance, asset quality, and growth rates [11][10]