Goldman Sachs lowers the pre-provision profit forecast for domestic bank stocks by 0.3%, recommends China Merchants Bank

Goldman Sachs released a report on domestic bank stocks, raising the average net interest margin forecast for covered domestic banks from 2025 to 2027 by 1 basis point; the forecast for fee income was raised by 1%; the loan growth forecast was lowered by 0.2 percentage points, while the credit cost forecast remained largely unchanged. These adjustments led to a 0.3% downward revision in pre-provision profit and a 0.5% upward revision in post-tax net profit forecasts. The bank maintained its target valuation multiples for covered stocks, with an average target price reduction of 0.3%, indicating that domestic bank stocks listed in Hong Kong still have a 2% upside potential.

In terms of individual stocks, the bank recommends China Merchants Bank (03968.HK) as it stands to benefit the most from the recovery in consumer finance, has good asset quality, and sufficient capital and provisions, with expected profit growth outpacing that of large banks and potential for dividend increases. The bank also recommends Bank of Ningbo (002142.SZ) due to its extremely low exposure to real estate risks, continuous improvement in non-performing loan generation rates, and sufficient risk absorption capacity, allowing for prudent provisioning while achieving quality profit growth. Among large banks, the bank prefers China Construction Bank (00939.HK) and Bank of China (03988.HK), both of which have completed capital replenishment.

Regarding the fourth quarter earnings call from last year, the bank believes investors will focus on when the net interest margin will bottom out; the recovery of consumer finance and the growth prospects of fee income; the asset quality trends of retail and small to medium-sized enterprise loans, and the provisioning outlook.

The table below lists Goldman Sachs' latest investment ratings and target prices for domestic bank stocks (only listed H shares in Hong Kong):

Stock│Investment Rating│Target Price

ICBC (01398.HK)│Neutral│HKD 5.8 → HKD 5.79

Bank of China (03988.HK)│Buy│HKD 4.94 → HKD 4.95

China Construction Bank (00939.HK)│Buy│HKD 8.33 → HKD 8.27

Agricultural Bank of China (01288.HK)│Neutral│HKD 4.95 → HKD 4.91

Bank of Communications (03328.HK)│Sell│HKD 5.8 → HKD 5.79

Postal Savings Bank of China (01658.HK)│Buy│HKD 6.04 → HKD 6.03

China Merchants Bank (03968.HK)│Buy│HKD 53.41 → HKD 53.44