Category: Money tips Release Date: 2007-02-06
Source: Orient Securities Author: Gu Jun Lei
Large cap relative to the hot anomaly, bank stocks recent performance in the doldrums, mainly because many investors that the plate has been valued at a reasonable level. The current market valuation of bank stocks more popular method is a simple use of PB and PE compared to the listed banks in turn to determine the relative value of the size.
However, we believe that this method may result in misreading the information. The reason is that, due to the presence of loan provisions, net assets, net income and other indicators in the banking sector there is a certain non-comparability. In comparison, under the assumption of uniform provision coverage, adjusting for each listed bank's net assets, adjusted on the basis of net assets in each of the listed companies and adjustment of the market value of net assets ratio (MV / Adjusted NAV) and thus judge their relative value is a more scientific method of valuation of bank stocks. In this valuation system, the Shanghai Pudong Development Bank, Huaxia Bank have varying degrees of underestimation.
The level of provision affect the valuation
Banking and industrial sectors the biggest difference is that its main assets, earnings from loans and receivables, for which banks need a corresponding accrual provision. If the leverage rate was 12.5% in accordance with the loan proportion of 60% is estimated that equity to the provision of the elasticity coefficient will reach 5.03%. This shows that, due to China's banking industry is relatively higher leverage ratio and a relatively large proportion of loans, making banks set aside the impact of shareholder rights and interests are more important.
If we think that banks will have to determine the risk level totally reflected in the provision, and the risk of banks to identify and there are no significant differences in the way, then set aside for the operating performance of the banks should be relatively consistent. But in China, banks are not entirely based on a provision of the level of risk judgments. Bank ownership structure, management time to grasp, and credit markets, non-market in both the bank's provision for a significant impact on the level. For example, the restructuring of state-owned banks have generally set aside before the shortage, mainly due to shareholder, regulatory bodies, tax authorities unity, reducing the demand for provision of subjects; and regulators on the provision of management and tax policies also contributed to the evolution of The banks set aside the intensity and style differences.
In fact, the listed banks, as members of joint-stock commercial banks in the industry, position, profit model, network size and so there are no significant differences in the risks it faces is similar to the distribution, as they should, but there are still large differences in the level of provision . Statistics show that of all listed banks in loan-to-deposit ratio, lending weight does not differ greatly, while the non-performing loan ratio among the high SDB, but also the basic approach. However, the level of provision to total loans and the provision / non-performing loans ratio is a larger divide appears: Pudong, China Merchants, the people's livelihood provision / non-performing loans has exceeded 100%, Shanghai Pudong Development more than 140%, while nearly 70% of China, Shenzhen the development of less than 50%. Therefore, if a simple comparison does not take into account provisions that will undoubtedly affect the real value of bank shares judgments.
Another way to look at valuation
In these circumstances, simple to use PE, PB comparison of listed banks is obviously not rigorous. We believe that the risk comparable banks, you can use a unified coverage of adjusted net assets set aside to reduce the provision for a different style than the factors that can not be created.
In the overall risk of a similar premise, the management operation to eliminate subjective judgments of different styles and the most simple and effective way is to assume that a reasonable provision of uniform coverage (consolidated coverage, CC), each listed banks can adjust the actual allocation of Preparation and net assets. In the adjusted net assets, based on the calculation of each of the market value of listed companies to adjust the ratio of net assets (MV / Adjusted NAV), and then look at their relative values.
For the actual coverage is higher than CC-Bank, a provision should be more provision for reversal of the net assets at the same time reversed provision for deferred tax; for the actual coverage of less than CC, the need to extract from the lack of net assets prepared at the same time charged to the corresponding deferred tax. As China's banking sector credit risk is considered too concentrated, anti-risk capability is weak, so we have adopted a unified higher provision coverage, assumed to be 100%. This gain should be theoretically equal to the adjustment of the net assets of non-performing assets, after all the write-off the net assets of the banks to recover bad loans without regard to the theoretical liquidation value.
G increases investment in Shanghai Pudong Development Rating
We believe that the two times the MV / Adjusted NAV mean value of the company have been grossly underestimated. Because in the context of full circulation, in theory, the proportion of 51% of the holding can control the bank liquidation value, but also to obtain the expected profit growth and implicit brand value network.
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According to this judge, Shanghai Pudong Development Bank and Huaxia Bank's share price significantly undervalued. Underestimate the extent of the Shanghai Pudong Development Bank and even more in 2006 is expected that this ratio was only 1.6 times and 2 times the reasonable ratio between the gap 25%. Shanghai Pudong Development Bank, taking into account the completion of the split share structure reform and shareholders, after integration of the good prospects for development, we will be Shanghai Pudong Development Bank's investment rating from "overweight" to "buy."
In addition, the PB an amendment could be by analogy with the market value of pre-provision operating profit ratio (MV / PPOP) approach. We give the listed banks MV / PPOP the ratio, and this relative ranking is still support for our conclusion of each company's rating.
The market value of listed banks and adjustment of the ratio of net assets
(Cc = 100%)
MV / Adjusted NAV 2005 2006F
Shanghai Pudong Development Bank 1.91 1.6
China Merchants Bank 3.68 2.38
Minsheng Bank 2.86 2.18
Huaxia Bank 2.12 1.79
Average 2.64 1.99
The market value of listed banks and the ratio of operating profit before provisions
Listed banks MV / PPO (2005) MV / PPOP (2006)
Shanghai Pudong Development Bank 4.41 4.07
China Merchants Bank 8.33 7.28
Minsheng Bank 7.13 6.11
Huaxia Bank 5.14 5.31
Shenzhen Development 5.03 3.76
Bank of Communications 11.55 10.5
China Construction Bank 10.45 9.5
Focus on corporate earnings forecasts and investment ratings
2004 EPS 05 listed banks EPS 06 Nian Nian EPS (forecast) Investment Rating
G China Merchants Bank held 0.46 0.38 0.39
Shanghai Pudong Development Bank bought 0.49 0.64 0.83
G livelihood of the people holding 0.37 0.32 0.39
Huaxia Bank holdings 0.24 0.31 0.37
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