Group 1: Market Transition and Challenges - The banking wealth management industry is transitioning to asset management with a focus on low-risk products, facing challenges from declining interest rates and missed opportunities in higher-risk asset allocation[1] - As of June 30, 2025, the total scale of bank wealth management products reached CNY 30.7 trillion, with a mere 0.5% annual growth rate since 2017[10] - The proportion of low-risk products (R1 and R2) increased from 81.3% to 95.9% from 2020 to mid-2025, indicating a conservative shift in product offerings[15] Group 2: Strategic Directions for Wealth Management Subsidiaries - Wealth management subsidiaries can focus on three strategic directions: serving as tools for bank asset-liability management, transforming into multi-channel asset management companies, and outsourcing non-fixed income asset investments[2][3] - The first strategy emphasizes providing low-risk products to replace deposits, potentially reducing fees to zero to maintain investment returns[1] - The second strategy involves enhancing investment capabilities across various asset classes and expanding distribution channels, which carries risks due to high investment costs and uncertain progress[2] Group 3: Financial Performance and Fee Structures - The average fee rate for wealth management subsidiaries is around 19 basis points, with a median operating cost of CNY 300 million[49] - The break-even point for a small wealth management subsidiary is estimated at approximately CNY 790 billion in managed assets[50] - The management scale of the top ten wealth management subsidiaries accounts for over 60.7% of the total market, indicating a highly concentrated industry[58]

Investment Rating - The report initiates coverage on China Everbright Bank H-shares with a "Buy" rating and a target price of HKD 4.62, corresponding to a 2025E PB of 0.50x [1][8]. Core Views - China Everbright Bank benefits from strong group resources and has established a competitive edge in wealth management and financial market operations, which supports its non-interest income base [2][16]. - The bank has effectively reduced high-cost deposits and cleared existing risks, leading to improved asset quality and a stable non-performing loan (NPL) ratio of 1.25% [3][18]. - The valuation pressure is easing, and the bank's dividend yield is attractive, with a projected 2024 dividend payout ratio of 30.14% [4][19]. Summary by Sections Group Strategy and Resource Support - The bank leverages comprehensive financial resources from the Everbright Group to enhance its non-interest income, particularly in wealth management, with a leading scale of RMB 1.82 trillion in its wealth management subsidiary as of H1 2025 [2][17]. - The bank adopts a cautious strategy in its financial market operations, focusing on holding investments to maturity rather than realizing gains through active trading [2][17]. Financial Performance and Risk Management - The bank has been actively managing its cost of liabilities by optimizing high-interest deposits and enhancing its deposit structure, which provides significant room for cost reduction [3][18]. - As of August 19, 2025, the implied NPL ratio based on current PB is significantly higher than the actual NPL ratio, indicating market overestimation of asset quality risks [3][20]. Valuation and Dividend Yield - The bank's H-shares are trading at a low valuation of 0.39x PB and a high dividend yield of 5.77%, making it an attractive investment option [4][16]. - Shareholder confidence is reflected in recent announcements of share buybacks and increased holdings by major shareholders, which bolster market sentiment [4][19]. Earnings Forecast and Valuation - The forecast for net profit attributable to shareholders shows a modest growth of 0.7% in 2025, with projected BVPS of RMB 8.47 for 2025, leading to a target PB of 0.50x [6][30]. - The bank's earnings are expected to remain stable despite pressures on net interest margins, with a focus on maintaining a robust capital position [6][30].