East Sea Securities' mid-term strategy for the banking industry: Dividends as the anchor, selectivity for flexibility.

Donghai Securities released a research report stating that the main theme of the banking sector has shifted towards "dividend certainty" + "fundamental verification". In terms of allocation, it is recommended to continue to use large banks with stable dividends, high capital safety margins, and strong asset quality as the core positions, maintaining the dividend allocation value of the banking sector. At the same time, focus on leading banks in asset quality, early easing of interest rate pressure, strong regional economic resilience, and quality joint-stock banks and regional banks with repair potential for non-interest business around the mid-year report verification and clues of operating repairs in the second half of the year. In terms of rhythm, in the short term, anchor with dividend certainty, and gradually increase the weight of high-quality and flexible varieties after fundamental data verification in the medium term. The main points of Donghai Securities are as follows: Dividends are still the valuation anchor of the banking sector, but pricing logic pays more attention to dividend certainty. In a low interest rate environment, bank dividend yields are still attractive relative to long-term interest rates, and the demand for stable cash flow assets from long-term funds still exists, and the bond-like attributes and core value of the sector have not disappeared. However, after the previous rally, the internal cost-effectiveness of dividend assets has differentiated, and the effectiveness of selecting targets solely on static dividend yields has decreased. In the second half of the year, the market will pay more attention to the stability of dividend ratios, adequate capital levels, asset quality bottom line, and sustainable profitability. Large banks still have strong dividend core attributes. The annual judgment of easing operating pressure still holds, but in the second half of the year, the focus shifts from "expectation improvement" to "data verification". In the second half of 2026, there are still supporting and suppressing factors for key variables such as the scale of the banking industry, interest spreads, non-interest income, and asset quality, but the main pressure points continue the easing trend from the first half of the year. Among them, the key fundamental clue is the easing of pressure on interest spreads: the downward slope of loan interest rates on the asset side has slowed, and the repricing of deposits on the liability side continues to release cost improvement space. In terms of asset quality, risks on the corporate side are generally stable, and risks in retail and operating loans still need to be monitored, but provisions and capital still provide a cushion for risk disposal. In non-interest aspects, wealth management and intermediate income repair are still worth attention, while constraints from high base numbers in trading business continue. Elastic opportunities still exist, but the focus is shifting from sector expectations to individual stock realization. The judgment in the annual strategy of "capturing cycle elasticity" needs to be further converged to "optimal elasticity" in the mid-year. In the second half of the year, it is not appropriate for the banking sector to simply switch from high dividend to high elasticity, nor is it appropriate to generalize the elasticity of small and medium-sized banks. Truly valuable elastic targets should have clearer verification bases in dimensions such as interest rate stabilization, asset quality clearance, provision safety cushion, regional economic prosperity, and wealth management repair. In other words, elasticity should come from operational improvement realization, rather than simply valuation repair expectations. Risk warnings: Macroeconomic recovery falls short of expectations; Interest rate decline exceeds expectations; Asset quality deteriorates beyond expectations; Intermediate and trading business repairs fall short of expectations; Dividend stability is lower than expected; Market style switch risk.