China Banks & Property_Tour takeaways - better, but not good enough

Summary of Conference Call Notes Industry and Companies Involved - Industry: Banking and Property in China - Companies Discussed: - China Merchants Bank (CMB) - Ping An Bank (PAB) - China Overseas Land & Investment (COLI) - China Resources Land (CR Land) - China Resources Mixc Lifestyle Services - Poly Property Services - Futu Holdings Key Points and Arguments Banking Sector Insights - Retail Sentiment and Mortgage Demand: Banks reported resilient retail sentiment and mortgage demand, expecting better growth in fees and loans in 2025, particularly from retail contributions [10][11][19] - NIM Contraction: Net Interest Margin (NIM) contraction is expected to continue into 2025, although at a smaller magnitude than in 2024. One bank anticipates a 30 basis points (bps) cut in the 1-Year Loan Prime Rate (LPR) and a 40-50 bps cut in the 5-Year LPR in 2025 [10][11][19] - Loan Growth: Both CMB and PAB expect an acceleration in loan growth, particularly in the retail segment, which may offset the negative impact from NIM contraction. In 9M24, CMB and PAB reported NII growth of -3% and -21% respectively [11][19] - Fee Income Recovery: Fee income growth is anticipated to recover, driven by improved retail sentiment and easing of previous fee rate cuts. CMB and PAB saw fee income decline of 17% and 18% year-on-year in 9M24, but management expects recovery in 2025 [19][20] Property Sector Insights - Property Destocking Challenges: The property destocking program is progressing slowly, with banks indicating limited involvement from commercial banks in acquiring unsold inventory from developers [10][36][45] - Mortgage Trends: Mortgage loan growth is recovering, with average monthly new mortgages increasing from RMB 1.7 billion in 1H24 to RMB 2.1 billion in 2H24. The mortgage rate in Guangzhou has stabilized at 3.0% [48][49] - Asset Quality: CMB expects corporate NPL ratios to remain stable or slightly decline in 2025, while retail NPL formation may be higher but with a stable ratio. PAB anticipates lower overall credit costs in 2025 due to derisking efforts [31][32][50] Investment Recommendations - Banking Preferences: J.P. Morgan prefers A-share banks over H-share banks, favoring CMB-A for its higher certainty on capital returns and potential dividend upside [10][11] - Property Stocks: For the property sector, J.P. Morgan suggests accumulating shares of CR Land, COLI, CR Mixc, and Poly PS on dips, as share prices are expected to underperform in the near term until new policy expectations are revived [10][11] Other Important Insights - Client Risk Appetite: Both CMB and PAB have observed improvements in client risk appetite, with clients reallocating investments from wealth management products into equity funds [21] - New Loan Products: PAB is launching new retail loan products targeting medium-risk clients to replace high-risk XinYiDai loans, which are being phased out [22][31] - Market Sentiment: Experts express a positive outlook for Shenzhen's property market, while being cautious about low-tier cities due to high inventory and weak demand [61][62] This summary encapsulates the key insights and trends discussed during the conference call, providing a comprehensive overview of the current state and future expectations for the banking and property sectors in China.