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On Tuesday, HSBC analyst Gary Lam downgraded China Citic Bank Corp Ltd. (998:HK) (OTC:CHCJY) stock from Buy to Hold, despite increasing the price target from HK$6.80 to HK$7.20. The adjustment reflects a cautious stance on the bank’s future performance, as Lam highlighted concerns over potential risks to the bank’s asset quality and growth capabilities.
China Citic Bank’s shares have seen significant outperformance compared to its peers and major indices over the past three years. However, HSBC analysts believe this trend is unlikely to continue. They pointed to potential downside risks in the bank’s retail business, fee income, and asset quality. Additionally, the bank’s lower-than-average Common Equity Tier 1 (CET1) ratio, which is a measure of a bank’s financial strength, could limit its ability to grow in the future.
Despite these concerns, HSBC still acknowledges China Citic Bank’s potential in the wealth management sector. The bank’s efforts to expand in this area are seen as a positive move, although HSBC has reduced its earnings per share (EPS) estimates for the years 2025, 2026, and 2027 by 0.2%, 2.6%, and 2.4%, respectively. These revised EPS forecasts are notably lower than the Bloomberg consensus, indicating that there could be further downward revisions from other analysts.
The new price targets set by HSBC for China Citic Bank’s H-shares and A-shares are HK$7.20 and RMB7.80, respectively, up from the previous targets of HK$6.80 and RMB7.10. The adjustment in price targets comes with a lower credibility discount assumption for both H-shares and A-shares of the bank. The full valuation details and associated risks have been elaborated on page 6 of HSBC’s report.
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