China Merchants Bank (03968.HK) reported a 2 percent rise in first-quarter net profit, a result that failed to translate strong revenue drivers into the robust earnings growth expected by analysts at JPMorgan.
In a report, JPMorgan noted that while the bank’s revenue growth of 4 percent year-over-year beat its estimates by 2 percent, the profit figure fell short. The bank said CM Bank’s recovery in net interest income and strong wealth management momentum did not lead to significant profit expansion, raising questions about its premium valuation over peers.
The results showed revenue growth was driven by the fastest acceleration in net interest income since the first quarter of 2023 and a surge in wealth management fees. Retail assets under management increased 4.5 percent from the prior quarter. However, those gains were offset by provisioning expenses that were 13 percent higher than JPMorgan's forecast and a 3 percent contraction in non-wealth management fee income.
JPMorgan maintained its Overweight rating and HKD62 price target on the stock but warned that near-term share price momentum will likely remain weak. The bank expects China Merchants Bank may underperform its peers in the absence of clearer commitments from management on its growth outlook or shareholder returns.
The divergence between revenue strength and profit growth highlights the challenges facing the Chinese banking sector. While top-line performance is recovering, rising credit costs continue to pressure bottom-line results for lenders. Investors will be watching for the bank's ability to control provisions in the upcoming quarters.
This article is for informational purposes only and does not constitute investment advice.
