Best-performing China bank stock may have room to rise by 23 percent

Bloomberg

President Xi Jinping’s push to spur lending in his economy stands to benefit Postal Savings Bank of China Ltd., whose ubiquitous green-fronted outlets have been luring deposits across the nation.
This branch network, the widest in the world, has become a source of cheap funds for the lender, ensuring it’s better placed than rivals amid the government’s crackdown on riskier financing. Postal Bank is China’s best-performing financial stock this year, and analysts surveyed by Bloomberg say its shares could rise an average 23 percent from the current HK$4.65.
“The valuation of Postal Bank is still pretty reasonable after the rally, therefore investors remain pretty bullish about the stock,” said Liao Chenkai, a Shanghai-based analyst with Capital Securities Corp. The bank’s net interest income will keep growing this year as regulators encourage lending and demand for corporate loans will continue, he said.
Postal Bank’s profit is forecast to rise 16 percent in 2018, twice as fast as its five largest state rivals. The bank had $1.2 trillion in deposits as of March 31, of which less than half were extended as loans, compared with 70 percent for China’s banking sector. Meanwhile, its bad-debt ratio stood at 0.7 percent, compared with 1.75 percent for the entire industry.
Postal Bank also seems more fairly valued now, after falling about 17 percent from its June high. The correction was triggered by Goldman Sachs Group Inc., which downgraded the stock citing its high valuation. That has narrowed the price-to-book ratio versus Industrial & Commercial Bank of China Ltd., the nation’s largest lender.
Shares of Postal Bank rose as much as 2.6 percent in Hong Kong on Monday — the biggest intra-day jump in three weeks — and were trading 2.4 percent higher, exceeding the benchmark Hang Seng Index’s 1.5 percent gain.
All this gives the bank room to boost lending. China’s financial regulators have taken several steps to free up credit in the past month and ordered the nation’s lenders to boost credit support for infrastructure projects, small businesses, agriculture and exporters.