Dahua Jixian: Mid-term profits of Bank of China roughly meet expectations. First choice is China Merchants Bank (03968).

Dahua Jixian released a research report stating that China Merchants Bank (03968) is their preferred choice among domestic banks. They mentioned that even though there may be higher housing loan risks for China Merchants Bank compared to state-owned banks, the impact on its potential profitability is relatively lower. This is mainly due to its higher net interest income contribution, better financial indicators (including ROE, asset quality, and provisioning buffer), and a dividend yield of 7.2%. Dahua Jixian believes that China Merchants Bank has sufficient capital buffers to maintain its dividend levels. They have given a "buy" rating to China Merchants Bank with a target price of HKD 42. The bank stated that the profit of domestic banks in the first half of this year roughly met expectations. They estimated that the total reduction of mortgage rates by 80 basis points would have a 6.5 basis points or 9.2% impact on the profits of domestic banks next year. The bank maintains a "hold" rating for the industry. However, after a recent adjustment in stock prices, valuation has been suppressed and dividend yield has increased, which may bring a glimmer of hope for defensive stocks. More policy support from regulatory agencies to safeguard the profit margins of domestic banks, such as lowering deposit rates and reserve requirements, could help alleviate investor concerns about the fundamentals of domestic banks.