Category: Money tips Release Date: 2007-05-26
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Industry Background State Administration of Taxation said it would study how to improve on in 2007 to support the reform of state-owned banks and capital market development, business tax policy. At present, banks in accordance with gross lending fees, interest income and gross business income to pay 5% sales tax.
Investment opportunities, we believe that the news of the medium-term impact on the banking sector as a positive because:
1. This is the first time officially confirmed the State Administration of Taxation cut business taxes in its research agenda.
2. However, in line with our previous comments (sales tax may be reduced after 2008), we consider the possibility of the policy was implemented and the time between the central and local governments will depend on the results of the consultations, because sales tax is a local tax , while local government revenues in general are facing tight financial situation.
We estimate that the total amount of sales tax paid by the banking sector in 2005 accounted for 4.5% of the total income of local government around.
3. However, we continue to push forward banking reform this as a positive signal. We believe that the China Banking Regulatory Commission has been lobbying the State Administration of Taxation to reduce business tax rates in order to enhance China's competitiveness in the global banking industry. 4. Although the State Administration of Taxation said that the business tax policy research aimed at supporting "the reform of state-owned banks," but we believe that all listed banks are likely to benefit, because: 1) the majority of listed banks have some state-owned shares; 2) China be possible to create a banking environment of fair competition.
5. From the earnings and valuation of the business tax rate cut of 100 basis points of sensitivity analysis, we believe that Bank of Communications (3328.HK, buy), China Merchants Bank (600036.SS, buy), Shanghai Pudong Development Bank (600000 . SS, buying) and the Shenzhen Development Bank (000001.SZ, neutral) and other smaller banks may exceed the benefits obtained by large banks.
We estimate that if the sales tax rate cut of 100 basis points, China's banking sector's net profit may increase 2% -5%, CAMELOT model implied book value may be raised by 2% -5%.
We reiterate our positive view of China's banking industry, the establishment of bargain-hunting investors, rather than profit-taking rallies.
