Goldman Sachs: Maintain a cautiously optimistic view on domestic banking stocks, prefer China Merchants Bank (03968).

Goldman Sachs released a research report stating that the A-shares and H-shares of Chinese banks rated by the bank have achieved market value-weighted absolute returns of 12% and 21% respectively since the beginning of the year. The bank believes that the industry's demand for stock dividend returns is not driven by investors, but mainly by the improvement of the fundamentals of each bank, including the stabilization of asset quality and the narrowing of the net interest margin decline. Looking ahead to the third quarter performance, the bank maintains a cautiously optimistic view on the mainland banking industry. In stock selection, more attention will be paid to banks that focus on reducing the impact of bond investments on profit and capital volatility during the recovery process of the net interest margin, maintaining appropriate credit growth, and maintaining reserves and capital adequacy. Goldman Sachs believes that large state-owned banks and China Merchants Bank (03968) have greater potential for sustainable net interest margin recovery compared to other peers, thus having greater potential for shareholder returns. Goldman Sachs has slightly adjusted the forecasted pre-provision operating profit and net profit of the rated banks for the years 2025 to 2027 to reflect the impact of improved prospects for fee income growth, weakening credit demand, declining investment income contribution, and increasing provisions. The target price for the covered H-shares of Chinese banks has been lowered by 1% to 9%, with a preference for China Merchants Bank, giving it a "buy" rating with a target price lowered from HK$53.34 to HK$52.98. China Merchants Bank, Postal Savings Bank Of China (01658), Bank Of China (03988) and China Construction Bank Corporation (00939) H-shares are all given a "buy" rating.