CCB’s 1H Net Interest Income Growth Strong on Smaller-Than-Peer NIM Contraction

In line with peers, China Construction Bank’s first-half net profit growth slowed to 5.4% year on year from the 6.8% pace in the first quarter. Sluggish economic activity, monetary easing and weaker capital markets dampened net fee and commission income. With minimal change to our assumptions, our CNY 6.40 fair value estimates for the A-shares and HKD 7.60 for the H-shares are unchanged. The stock is undervalued, trading at a historically low 0.4 times 2022 price/book value. Given its inherent strength in infrastructure loans and mid- to long-term corporate loans, we expect the bank will benefit from China’s fiscal spending push, but concerns over COVID-19 policy limbo in China and weak real estate sentiment could still weigh on investor appetite. We expect these issues to be increasingly addressed over the next six months, which could lift sentiment. Rental housing, inclusive finance, and technology were CCB’s three top strategic focuses, and we expect such initiatives to translate to better growth momentum for the bank in the long run.