UBS Cuts Agricultural Bank of China Stock Rating to Neutral

On Wednesday, UBS analysts adjusted their stance on Agricultural Bank of China (OTC:ACGBF) Ltd. (1288:HK) (OTC: ACGBY), downgrading the stock from Buy to Neutral and setting a price target of HK$4.80, up from the previous HK$4.25. The revision was based on concerns about the bank’s valuation relative to its peers and its financial outlook. The bank, currently valued at $248.31 billion, has seen its stock price rise over 51% in the past year, according to InvestingPro data.

The bank, commonly known as ABC, had demonstrated a stronger performance than its peers in terms of revenue and profit over the past two years, maintaining a steady revenue growth of 3.56%. However, UBS analysts anticipate that ABC’s financial results will become less distinctive in 2025. They cite an expected slowdown in loan growth, a decrease in net interest margin (NIM), and a reduced contribution from trading and investment income as reasons for this change.

UBS analysts also noted that ABC’s valuation is the highest among the Big-4 Chinese banks, with a projected 2025 price-to-book value (P/BV) ratio of 0.55x, compared to its peers ranging from 0.45x to 0.49x. Currently trading at a P/E ratio of 6.89x and offering a substantial 4.19% dividend yield, InvestingPro analysis suggests the stock is slightly overvalued at current levels. This high valuation may not be justifiable if the bank’s financial performance becomes less impressive.

Additionally, there are expectations of significant capital raising activities for ABC in the near future. Although the bank is not part of the initial group receiving capital injections, UBS believes it is likely to be included next year. Given ABC’s relatively low Common Equity Tier-1 (CET-1) ratio of 11.4%, the lowest among the Big-4, the analysts expect the capital-raising size to be substantial, potentially exceeding Rmb200 billion. This anticipated capital increase could lead to dilution of earnings per share (EPS) and dividends per share (DPS), contributing to the decision to downgrade the stock rating. For deeper insights into ABC’s financial health and comprehensive valuation metrics, investors can access the detailed Pro Research Report available on InvestingPro, which covers over 1,400 top stocks with expert analysis and actionable intelligence.

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