China Banks Insight Equities Handbook 2026: Fundamentals over flows & policies China Disclosures & Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it. Commercial Banks Gary Lam*, CFA Head of Greater China Financials Research The Hongkong and Shanghai Banking Corporation Limited gary.lam@hsbc.com.hk +852 2996 6926 How share price drivers are evolving: Global investors have asked why China banks ha ...

Investment Rating - The report assigns a "Buy" rating to several banks, including ICBC-H, CCB-H, and BOC-H, based on their above-peer dividend yield and attractive valuations [11]. Core Insights - The net interest margin (NIM) is expected to diverge between large banks and regional banks, with regional banks likely to perform better due to higher risk appetite and benefits from time-deposit rate cuts [2]. - Policy-financing instruments are anticipated to support loan growth into 1Q26E, potentially driving new loans of RMB2.5 trillion to RMB5 trillion [3]. - Overall asset quality remains stable, but there is increasing pressure on developer loans and non-mortgage retail loans, with manageable credit risk in mortgage loans [4][7]. - Fee income is improving due to strong agency and custodian fees, although a potential fee rate cut in mutual funds could impact future income [8]. - Big banks maintain flattish earnings growth guidance for 2025E, while regional banks like BOCD and BONJ expect around 5% to 8% earnings growth [9][10]. Summary by Sections Net Interest Margin (NIM) - NIM pressure is expected to moderate into 4Q25E, with large banks anticipating continued year-on-year compression in 2026E [2]. Loan Growth - The distribution of RMB500 billion in policy-financing instruments is expected to enhance loan growth, particularly for banks with higher exposure to infrastructure [3]. Asset Quality - Asset quality is stable overall, but there are rising pressures in developer loans and non-mortgage retail loans, with manageable risks in mortgage loans [4][7]. Fee Income - Fee income has improved, driven by strong performance in asset management, though future fee income may be affected by rate cuts [8]. Earnings Growth - Big banks expect flattish earnings growth in 2025E, while regional banks forecast modest growth, with specific banks like PAB expecting a return to positive year-on-year growth in 2026E [9][10]. Valuation and Equity Raising - The market is focused on potential equity raising, particularly for regional banks trading below 1x book value, which could open financing opportunities for others [10].

Summary of PICC Group 3Q25 Conference Call Company Overview - **Company**: PICC Group (1339.HK) - **Industry**: Insurance Key Takeaways 1. Premium Growth and CoR Improvement - In 3Q25, PICC's premium growth was steady at +4% year-over-year, consistent with 1H25 growth [2] - Auto premium growth aligned with industry levels, while agricultural, commercial properties, and liability lines showed muted growth [2] - CoR (Cost of Risk) improved significantly year-over-year due to reduced NAT CAT losses, attributed to enhanced risk prevention measures by the government and PICC [2] 2. Future CoR Expectations - Management anticipates further CoR improvements driven by: - Continued regulatory strengthening in the auto insurance sector with stricter expense monitoring starting in 2025 [2] - Gradual relaxation of NEV pricing factors launched in mid-September 2025 [2] - Expense rationalization in non-auto businesses commencing November 1, 2025, starting with commercial property and employer liability lines [2] 3. Life Insurance Growth - Bancassurance remained the primary growth driver in 3Q25, with regular premium growth increasing from approximately 50% year-over-year in 1H25 [3] - Focus on long-term products with premium payment terms of 5 to 10 years, shifting towards par/universal products [3] - Improvement in NBV (New Business Value) margin year-over-year noted [3] 4. Health Insurance Opportunities - Management is exploring the establishment of medicine catalogs for various health insurance tiers, particularly targeting middle-end health insurance [4] - The introduction of innovative drugs in catalog B is expected to enhance market potential and allow for higher pricing [4] 5. Investment Performance - In 3Q25, management reported that net assets increased quarter-over-quarter, driven by improved equity returns, particularly from growth-style stocks [5] - The broad-based growth stock index rose by 24% in 3Q25 compared to 16% in 3Q24, benefiting PICC's investment strategy [7] 6. Valuation and Target Price - Target price set at HK$7.50, based on a sum-of-the-parts (SOTP) approach, reflecting a 0.72x 2026E P/EV multiple [8] - Market capitalization reported at HK$299.839 billion (approximately US$38.528 billion) [5] 7. Risks - Key downside risks include: - Prolonged downturn in the P&C (Property and Casualty) sector [9] - A-share market slump [9] - Strengthened regulations in the life insurance industry [9] - Deterioration of the macroeconomic environment [9] 8. Upside Risks - Potential upside risks that could lead to stock trading above target price include: - Accelerated recovery in the P&C sector post-auto insurance reform [11] - A-share market rally [11] - Regulatory relaxation in the life insurance sector [11] - Improved macroeconomic conditions [11] This summary encapsulates the essential insights from the PICC Group's 3Q25 conference call, highlighting the company's performance, strategic outlook, and associated risks.