Bank of America Securities: Lower Agricultural Bank of China (01288) target price to 5.8 Hong Kong dollars, last year's profit slightly below expectations.

Bank of America Securities released a research report stating that considering the downward revision of profit forecasts and a 50 basis point increase in the cost of equity, the profit forecasts for Agricultural Bank of China (01288, 601288.SH) for 2026 and 2027 have been revised downward by 1% to 2%. The target price for the H shares has been adjusted from 6.32 Hong Kong dollars to 5.8 Hong Kong dollars, and the target price for the A shares of Agricultural Bank of China has been adjusted from 7.32 Chinese yuan to 6.4 Chinese yuan. The "neutral" rating for the H shares and the "underperform" rating for the A shares are maintained. The net profit of Agricultural Bank of China last year increased by 3.2% year-on-year to 291 billion Chinese yuan, slightly lower than the bank's expectations by 0.9%. The core profit decreased slightly by 0.1% year-on-year, lower than expectations by 1.8%. The return on equity dropped by 0.3 percentage points to 10.2% last year, and the core Tier 1 capital adequacy ratio decreased by 35 basis points to 11.08%. The dividend payout ratio remained stable, with a year-on-year increase of 3.1% to 0.2495 yuan per share. The dividend yield for H shares and A shares is 5.2% and 3.8%, respectively, relatively lower among peers. The bank stated that the net interest margin for Agricultural Bank of China in the fourth quarter of last year fell by 7 basis points quarter-on-quarter to 1.2%, showing weaker performance compared to peers. Fee income increased by 16.6% year-on-year, benefiting from a sharp increase of 88% in agency commissions. Other non-interest income was driven by disposal of debt securities and foreign exchange gains, increasing by 22% year-on-year. Revenue increased by 1.7% year-on-year, while operating costs increased by 4.9%, leading to a 1.1 percentage point increase in the cost-to-income ratio to 37.3%.