JP Morgan expects the market to respond positively to China Merchants Bank's profit growth last quarter, continuing to list it as a top pick in the industry

JP Morgan published a research report stating that China Merchants Bank (03968.HK) saw a 3% year-on-year increase in net profit in the fourth quarter of last year, surpassing JP Morgan's forecast by 2 percentage points and significantly exceeding market expectations by 7 percentage points; operating income rose by 2% year-on-year. However, the bank's non-performing loan coverage ratio decreased by 14 percentage points quarter-on-quarter to 392%, while the non-performing loan ratio remained at 0.94%.

JP Morgan believes that the increase in bad debt recognition and write-offs in the last quarter has kept the non-performing loans stable, but the provision amount has decreased. The bank believes that the decline in provisions is unlikely to trigger substantial market concerns about China Merchants Bank's future profitability, as it has the highest bad debt coverage ratio among Chinese commercial banks and state-owned banks, and investors expect a recovery in earnings and stable asset quality by 2026.

The bank anticipates that the market will respond positively to China Merchants Bank's higher profit growth in the fourth quarter, reiterating an "Overweight" rating with a target price of 61 yuan, continuing to list the stock as one of the industry favorites