China Merchants Bank's 1Q26 results missed expectations, but Goldman Sachs maintains a Buy rating

Overview

This report is Goldman Sachs' review of China Merchants Bank's 1Q 2026 results. The report believes that China Merchants Bank's 1Q26 results were below Goldman Sachs' expectations, mainly due to narrower net interest margin, lower-than-expected non-interest income, declining investment income, and rising provisioning pressure. Despite pressure on retail asset quality, Goldman Sachs still believes its customer base is relatively high quality and does not currently expect balance sheet risks to be triggered, so it maintains its Buy rating.

Core views

The core view is that short-term earnings missed expectations, but the medium-term investment thesis has not been overturned. Goldman Sachs is most focused on the quality of retail loan growth and NPL formation trends, especially risks in credit cards, consumer loans, and small and micro loans; it is also watching whether NIM has bottomed, the reasons for weaker investment income, and the ability of fee income to recover in 2026.

Analysis framework

The report uses a comparison between actual 1Q26 results and Goldman Sachs' expectations as the main line, breaking down net interest income, non-interest income, expenses, provisions, asset quality, capital, and valuation forecasts, while also making a cross-sectional comparison with Ping An Bank's retail loan growth and asset quality performance. For valuation, Goldman Sachs continues to use 2027E target P/PPOP multiples of 5.125x for A-shares and 5x for H-shares.

Methodology notes

• Earnings breakdownPPOP/NPAT and revenue-cost-provision breakdown

  Break down profit performance into net interest income, non-interest income, expenses, provisions, and taxes.

  This framework is used to identify the sources of the 1Q26 earnings miss, and the report shows that PPOP and net profit were 3% and 5% below Goldman Sachs' expectations, respectively.

• Valuation framework2027E target P/PPOP

  Set the target multiple based on 2027E pre-provision operating profit.

  Goldman Sachs maintains 2027E target P/PPOP multiples of 5.125x for A-shares and 5x for H-shares, and cuts target prices by about 1% due to lower earnings forecasts.

• Factor frameworkGS Factor Profile

  Compare a stock's position relative to the market and sector based on growth, financial returns, valuation multiples, and composite indicators.

  This framework is used to provide background on the stock's relative investment characteristics within Goldman Sachs' coverage universe and the China financials sector.

• M&A frameworkM&A Rank

  Measures the potential probability of a company becoming an acquisition target on a scale of 1 to 3.

  China Merchants Bank has an M&A Rank of 3, indicating a low probability of being acquired, and it is typically not included in the target price contribution.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China Merchants Bank H-shares (3968.HK)

  Core covered name

  Strengths

  Relatively high-quality customer base and strong capital levels; Goldman Sachs maintains a Buy rating.

  Weaknesses

  1Q26 results missed expectations, retail loan growth was weak, and both NIM and investment income were under pressure.

  Comparison

  Compared with Ping An Bank, retail loan growth and retail asset quality performance were weaker.

  Risks

  Rising retail NPL formation, higher provisions, fee income below expectations, and continued NIM decline.

• China Merchants Bank A-shares (600036.SS)

  A-share listing of the same company

  Strengths

  Target price implies greater upside than H-shares, and the Buy rating is maintained.

  Weaknesses

  Fundamental risks are consistent with H-shares, including retail asset quality and slowing revenue growth.

  Comparison

  A-share target price is Rmb54.18 versus the current price of Rmb39.60, with the report showing 36.8% upside.

  Risks

  A-share valuation rerating is affected by risk appetite for the banking sector, asset quality, and dividend expectations.

• Ping An Bank

  Retail banking comparison sample

  Strengths

  Started retail risk resolution earlier, with better 1Q26 retail loan growth and asset quality performance than China Merchants Bank.

  Weaknesses

  The report does not treat it as the core rated name in this piece.

  Comparison

  Ping An Bank's retail loans grew 0.4% QoQ, better than China Merchants Bank's 1.0% QoQ decline; retail NPL ratio fell 9bps YoY, while China Merchants Bank's retail NPL ratio rose 13/6bps YoY/QoQ.

  Risks

  Used for comparison only and does not represent the report's full investment conclusion on Ping An Bank.

Key data

• 1Q26 PPOP/net profitRmb 60bn / Rmb 38bnUp 4%/1% YoY, 3%/5% below Goldman Sachs' expectations.
• Net interest incomeRmb 56bnUp 5% YoY and flat QoQ, 1% below Goldman Sachs' expectations.
• Disclosed NIM1.83%Down 8/4bps YoY/QoQ; Goldman Sachs estimates NIM at 1.70%.
• Non-interest incomeRmb 29bnUp 2% YoY, 9% below Goldman Sachs' expectations.
• Fee incomeRmb 21bnUp 5% YoY, 3% below Goldman Sachs' expectations, possibly affected by lower public mutual fund fee rates and weaker capital markets.
• Investment incomeRmb 6bnDown 7% YoY, 26% below Goldman Sachs' expectations, possibly reflecting a significant YoY decline in realized bond mark-to-market gains.
• ProvisionsRmb 15bnUp 16% YoY, 5% above Goldman Sachs' expectations.
• Disclosed NPL formation rate1.08%Higher than 1.00% in 1Q25 and 1.03% in 2025, mainly driven by a rise in credit card NPL formation.
• NPL coverage ratio388%Down 4 percentage points QoQ and 22 percentage points YoY.
• CET1 ratio14.1%Down 73/3bps YoY/QoQ, 21bps below Goldman Sachs' expectations.
• Target priceH shares HK$52.86; A shares Rmb54.18Both reduced by about 1% from HK$53.53 and Rmb54.87, respectively.

Impact & implications

For investors, the short-term focus for China Merchants Bank has shifted from pure earnings growth to growth quality and risk costs. If retail NPL formation continues to rise, additional provisions may weigh on earnings elasticity; if NIM reaches an inflection point, fee income stabilizes, and credit card risk eases, support for the Buy rating will be stronger.

Risks

• NIM declines more than expected.
• Asset quality deteriorates significantly more than expected, leading to higher-than-expected additional provisions.
• Fee and commission income growth is weaker than expected.
• The dividend payout ratio is cut more than expected.
• Management changes.
• NPL formation in credit cards, consumer loans, and small and micro loans continues to rise.

What to watch

• Management guidance at China Merchants Bank's online meeting on May 7 regarding retail loan growth and asset quality trends.
• Whether retail NPL formation reaches an inflection point, especially credit card risk.
• The reasons for the QoQ decline in 1Q26 NIM and whether there will be an NIM inflection point in 2026.
• Loan yield and funding cost trends against the backdrop of Goldman Sachs economists expecting no policy rate cuts in 2026.
• The reasons for declining investment income despite a favorable bond market environment, and future bond investment strategy.
• The reasons for slower fee income and the recovery outlook for 2026.