Zhongtai: Bank of China (03988) continues to show good performance, maintaining a "Buy" rating.

Zhongtai released a research report stating that Bank of China (03988) has seen a significant rebound in revenue and net profit growth, with continued contributions from overseas business and fee income supporting revenue. The company's PB for 2026E, 2027E, 2028E is 0.66X/0.61X/0.57X; PE 7.61X/7.37X/7.22X. As a state-owned bank, the company maintains stable overall operations, with steady asset quality and significant advantages in overseas business. The company's valuation has a high safety margin, with high dividend yields and low valuation. The rating is maintained as "hold." Key points from Zhongtai include: Performance: In 1Q26, Bank of China's revenue increased by 5.9% year-on-year (compared to the financial report data, excluding other operating costs, vs. 1.7% year-on-year for the whole of 2025), while net profit attributable to shareholders increased by 4.2% year-on-year (vs. 2.2% year-on-year for the whole of 2025). Both revenue and net profit growth have significantly rebounded, with continued contributions from overseas business and fee income supporting revenue. 1Q26 net interest income increased by 7.8% year-on-year (compared to a decrease of 1.8% year-on-year in 2025), with a quarterly annualized net interest margin of 1.24%, down 2bp quarter-on-quarter, and down 2bp year-on-year. The annualized asset return rate for the quarter decreased by 9bp to 2.65%, while the interest rate on interest-bearing liabilities decreased by 9bp to 1.56%. Asset side: Good performance in new loans. (1) In 1Q26, interest-bearing assets increased by 9.4% year-on-year (increasing by 9.4% in 2025), with loans increasing by 8.2% year-on-year (8.7% in 2025), including a 10.2% increase in corporate loans, a 28.1% increase in bills, and flat growth in individual loans. (2) In terms of the loan structure for 2025, the top three industries were general government credit (62.2%), manufacturing (26.6%), and general technology (26.1%), with government credit and manufacturing increasing by 13.5% and 16.3% respectively compared to the previous year, maintaining high growth rates. Liability side: Stable growth in liabilities. (1) In 1Q26, interest-bearing liabilities increased by 10.0% year-on-year (4.2% in 2025), with deposits increasing by 6.1% year-on-year (8.2% in 2025). (2) In 2025, enterprise demand deposits, personal demand deposits, enterprise fixed deposits, and personal fixed deposits increased by 2.7%, 6.3%, 9.4%, and 9.9% respectively year-on-year. Demand deposits accounted for 38.5%, down 2.6 percentage points year-on-year. 1Q26 net non-interest income increased by 0.9% year-on-year (13.6% in 2025), with the main drag coming from other non-interest income. 1. Net fee income increased by 5.6% year-on-year in 1Q26 (7.4% in 2025), showing stable growth. 2. Other non-interest income decreased by 6.1% year-on-year in 1Q26 (21.9% in 2025). Asset quality: Core indicators continue to improve, with improvements in non-performing loan ratios, loan loss reserves, and overdue loan ratios; reserves increased. 1. Non-performing loan ratios and loan loss reserves continue to decline. The non-performing loan ratio in 1Q26 was 1.21%, down 2bp quarter-on-quarter and 3bp year-on-year. The loan loss ratio in 2025 was 0.49%, down 2bp year-on-year, while the loan loss ratio in 1Q26 was 0.36%, down 15bp year-on-year. Problem loans accounted for 1.47% of loans, down 3bp from the previous year. 2. The overdue loan ratio in 2025 decreased by 5bp in the first half of the year to 1.26%. 3. The loan loss reserve coverage ratio continued to increase: the loan loss reserve coverage ratio increased by 2.8 percentage points to 203.17%; the loan-to-asset ratio was 2.47%, remaining stable. Non-performing loan ratios by industry: By the end of 2025, the improvement in retail non-performing loan ratios was driven by mortgages. As of the end of 2025, the non-performing loan ratio for corporate loans was 1.24%, up 5bp quarter-on-quarter, with the non-performing loan ratio for manufacturing rising 1bp to 0.80%, and the non-performing loan ratio for real estate rising 51bp to 3.99%. The non-performing loan ratio for retail loans (including operating loans) decreased by 5bp quarter-on-quarter to 0.97%, mainly due to the decrease in non-performing mortgage loan ratios to 0.52%. Non-performing loan structure by industry: As of the end of 2025, the ratio of corporate loans to retail loans was 60:23, with the percentage of retail loans decreasing by 1.6 percentage points from the first half of 2025. The top three industries for corporate non-performing loans were real estate (21.01%), leasing and business services (16.46 %), and manufacturing (9.84%). Capital: Core Tier 1 capital adequacy ratio was 12.18% in 1Q26, down 35bp quarter on quarter and up 36bp year on year. Risk warning: Economic downturn exceeds expectations, company operations fall short of expectations, research report information is not updated in a timely manner.