The Zhitong Finance App learned that Changjiang Securities released a research report indicating that short-term factors such as market style have caused bank stock adjustments since March. However, in the medium term, the logic of dividend value revaluation has not changed. Against the backdrop of economic deceleration and declining interest rates, there is still room for convergence between dividend rates and risk-free interest rates. Since 2023, each round of adjustment for high-dividend bank stocks has been limited. At the moment, I am optimistic about the revaluation of the three types of dividend-type bank stocks.

The main views of Changjiang Securities are as follows:

Direction 1: Bank stocks with stable dividends — major state-owned banks and China Merchants Bank

Changjiang Securities emphasized that major state-owned banks are the pricing centers for bank stocks under the dividend valuation system. Dividend rates are benchmarked against risk-free interest rates to seek reasonable interest spreads. Currently, the average dividend rate of the five major state-owned banks is 5.63%, and the spread with the 10-year treasury bond yield is 332 BP. In a macro-environment of interest rate cuts and declining bank ROE, the market is divided over the stability and sustainability of dividends from major state-owned banks.

However, Changjiang Securities judged that in the medium term, major state-owned banks can maintain stable profits and keep the +30% dividend ratio unchanged. The core logic is that although net interest spreads and ROE continue to decline, the size of capital will also slow down in the future, and it is expected that the national loan growth rate will decline markedly this year. At the same time, capital supervision policies are friendly to major state-owned banks, and the growth rate of RWA continues to be lower than the growth rate of loans or total assets. Based on scenario assumptions, even if the net profit growth rate of major state-owned banks remains zero in the next three years, ROE declines, and the dividend ratio remains unchanged at 30%, capital can still meet the requirements under various circumstances.

China Merchants Bank (600036.SH) is the bank stock with the most outstanding medium- to long-term dividend capacity. Based on the dividend amount planned by China Merchants Bank in the 2023 report, the dividend ratio rose to 35%. The previous four years remained at 33% (the highest stability among listed banks). As of March 25, the 2023 planned dividend rate reached 6.29%, which is significantly higher than that of major state-owned banks. Strong dividend capability stems from high ROE and intensive capital management. It is expected that the 35% high dividend ratio will be maintained in the medium term in the future. On the one hand, ROE is still leading the industry; on the other hand, similar to the logic of major state-owned banks, not pursuing rapid expansion, future scale deceleration will reduce capital requirements. At the same time, the adjustment direction of the new capital regulations will also benefit high-quality retail assets such as mortgages and credit cards, and RWA's share of total assets will also be further reduced.

Direction 2: Dividend Growth Bank Stocks - Small and Medium Banks with High Growth Rate+High Dividends

According to Changjiang Securities, leading commercial banks represented by Bank of Jiangsu (600919.SH) and Bank of Chengdu (601838.SH) have shown high performance growth in recent years. Net profit to mother grew by 25.2% and 20.8% year-on-year respectively in the first three quarters of 2023, while maintaining a high dividend ratio of 30%. Currently, static dividend rates are as high as 5.38% and 5.80%, respectively. Looking forward to the future, although affected by the slowdown in industry loans and the narrowing of interest spreads, the performance growth rate of leading urban businesses is expected to slow down compared to the previous high growth rate, but it is still at the leading level of listed banks.

From the perspective of dividend stability, the Bank of Jiangsu has completed capital replenishment through convertible debt-for-equity swaps, and the future development strategy is clear. The Bank of Chengdu company regulations clearly stipulate that the annual dividend ratio should not be less than 30%, and it is expected that it will maintain a high dividend ratio in the future. Strong performance and stable high dividends mean that the dynamic dividend rates of leading urban businesses represented by the Bank of Jiangsu and Bank of Chengdu are expected to continue to rise every year, and the appeal is outstanding.

Direction 3: Bank stocks with improved dividends — improving asset quality drives valuation repair

Under the dividend valuation system, undervalued bank stocks ushered in recovery opportunities. Changjiang Securities said that in the past, the traditional valuation system paid more attention to growth space and growth rate flexibility. Due to weak growth, a number of bank stocks had very low market attention and trading activity, and valuation discounts were serious. Although the growth rate of some of these bank stocks is not high, their operating conditions and dividend ratio have been stable for a long time, leading to stable high dividend rates under current undervaluation, and there is an allocation value and valuation repair logic.

For undervalued bank stocks, improving asset quality is a necessary condition for valuation repair, and the direction of changes in non-performing rates and provision coverage is the core. The non-performing rates of the Chongqing Agricultural Commercial Bank (601077.SH), Bank of Beijing (601169.SH), and Bank of Shanghai (601229.SH) have declined in recent years. In terms of real estate in key areas, Yunong Commercial Bank accounts for only 0.5% of public real estate loans, which is significantly lower than the industry. The ultra-undervaluation of the three banks has led to high dividend rates. Currently, the static dividend rates are as high as 5.93%, 5.47%, and 5.99%, respectively.

Risk warning

1. Actual social financing demand continues to be sluggish; 2. The downward pressure on the economy has increased, and the quality of bank assets has deteriorated markedly.