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Convergence
China’s bank valuations were high post listing, but have de-rated for
years. This is despite their relatively good financial statements, including
ROE and ROA. We are beginning to believe that the state bank valuations
in India may be the comparable model. They are both operating in high
growth economies with similar ROEs, but China is 50% more expensive
on market capitalisation to assets. Also, we note that in terms of market
capitalisation to GDP, China is nearly double the level vs India’s banks.
They are converging in PB, maybe market capitalisation is next?
Market value to GDP
q Before China banks had H share listings, they had A share listings
q Their combined market value/GDP averaged 0.8% for the years 2000-1H05
q Immediately after H share listing this rose to 24%; and since came down to 15%
q This is interesting, as the pre H share listing valuations are similar to India banks
q India’s banks are valued at 8% to GDP which may be telling us something on China
Convergence of PB
q India’s PSU banks have ROEs not too different than China’s banks at nearly 20%
q Yet India’s PSU banks, trade at low valuations, at 0.8x PB and 5.0x PE
q The numbers for China’s banks are identical, on 0.9x PB and 5.0x PE
q Over five years, CCB and SBI have been converging on price/book
q Risk remains on convergence to other metrics, as well
ROE and LLP volatility
q India’s PSU banks averaged 15.9% ROE for years with 2.5% standard deviation
q Credit costs for India’s PSU banks averaged 1.4% with 0.5% standard deviation
q The critical question here is if it is possible for China’s banks to see these trends
q Indeed we have just raised our LLP estimates from 60bps to 80bps; more to come?
q At 120bps LLP/loans China’s banks ROEs fall to 14.8% from 18.8% - not impossible
Dividends
q For India’s state banks dividend payout averaged 21% for the past 15 years
q Our new China bank estimates now have payout falling a lot, to 24% by 12CL
q This is a meaningful decline in of itself from 31% 11CL, and is far lower than past
q This is also likely a driver of China bank values as they move to India PSU payout
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Convergence
China’s bank valuations were high post listing, but have de-rated for
years. This is despite their relatively good financial statements, including
ROE and ROA. We are beginning to believe that the state bank valuations
in India may be the comparable model. They are both operating in high
growth economies with similar ROEs, but China is 50% more expensive
on market capitalisation to assets. Also, we note that in terms of market
capitalisation to GDP, China is nearly double the level vs India’s banks.
They are converging in PB, maybe market capitalisation is next?
Market value to GDP
q Before China banks had H share listings, they had A share listings
q Their combined market value/GDP averaged 0.8% for the years 2000-1H05
q Immediately after H share listing this rose to 24%; and since came down to 15%
q This is interesting, as the pre H share listing valuations are similar to India banks
q India’s banks are valued at 8% to GDP which may be telling us something on China
Convergence of PB
q India’s PSU banks have ROEs not too different than China’s banks at nearly 20%
q Yet India’s PSU banks, trade at low valuations, at 0.8x PB and 5.0x PE
q The numbers for China’s banks are identical, on 0.9x PB and 5.0x PE
q Over five years, CCB and SBI have been converging on price/book
q Risk remains on convergence to other metrics, as well
ROE and LLP volatility
q India’s PSU banks averaged 15.9% ROE for years with 2.5% standard deviation
q Credit costs for India’s PSU banks averaged 1.4% with 0.5% standard deviation
q The critical question here is if it is possible for China’s banks to see these trends
q Indeed we have just raised our LLP estimates from 60bps to 80bps; more to come?
q At 120bps LLP/loans China’s banks ROEs fall to 14.8% from 18.8% - not impossible
Dividends
q For India’s state banks dividend payout averaged 21% for the past 15 years
q Our new China bank estimates now have payout falling a lot, to 24% by 12CL
q This is a meaningful decline in of itself from 31% 11CL, and is far lower than past
q This is also likely a driver of China bank values as they move to India PSU payout
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