China Merchants Bank H-shares: Positive signals from the 4Q analyst briefing, Overweight maintained

Overview

This report is JPMorgan's company research and earnings review on China Merchants Bank- H, based primarily on the 4Q25 analyst briefing. The report views the briefing as net positive: management gave relatively upbeat comments on 2026 operating momentum, revenue and profit improvement, corporate asset quality improvement, and stabilizing retail risk, so JPMorgan maintains its Overweight rating and HK$61.00 December 2026 target price.

Core views

The core views are: first, 2026 revenue and profit growth should gradually improve, supported by customer growth, deposit and loan growth, AUM growth, a narrower pace of NIM compression, and better asset quality; second, the increase in 4Q25 corporate NPL formation looks more like recognition of existing bad loans and quarterly volatility than a structural deterioration into 2026; third, retail remains China Merchants Bank's main strength, with strong customer growth, high-net-worth customer growth, and AUM growth, but management will prioritize asset quality over pure scale growth; fourth, capital and RWA pressure mean there is limited room to raise total shareholder returns or the dividend payout ratio.

Analysis framework

The report assesses management guidance, JPMorgan forecasts, Bloomberg consensus expectations, asset quality indicators, NIM changes, RWA and capital adequacy, retail and wealth management momentum, and a DDM valuation framework. The valuation uses a dividend discount model, assuming a cost of equity of 13.4%, normalized ROE of 13.7%, long-term growth of 4.5%, terminal P/BV of 1.04x, and a 5% H-share premium.

Methodology notes

• Valuation methodsDDM

  Dividend discount model

  The HK$61.00 target price is derived from DDM, with key assumptions including a 13.4% cost of equity, 13.7% normalized ROE, 4.5% long-term growth, a 1.04x terminal P/BV, and a 5% H-share premium.

• asset_qualityNPL formation analysis

  NPL formation analysis

  The report distinguishes between corporate and retail loan NPL formation, and argues that the 4Q25 rise in corporate NPL formation mainly reflects recognition of identified existing risk exposure rather than a worsening trend.

• bank_profitabilityNIM and ROE analysis

  NIM and ROE analysis

  The report evaluates earnings resilience and room for 2026 improvement using FY25 NIM of 1.87%, an 11 bps year-on-year narrowing, and management's commitment to ROE of no less than 10%.

• capitalRWA and CET1 assessment

  Risk-weighted assets and CET1 assessment

  The report believes 9-10% RWA growth and CET1 pressure will constrain upside to the dividend payout ratio, requiring a balance among capital, ROE, and dividends.

Asset mapping & comparison

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

• China Merchants Bank- H (3968.HK)

  Core covered name

  Strengths

  It has a standout retail customer base and AUM advantage, relatively low deposit costs among joint-stock banks and city commercial banks, retail pre-tax profit contribution of about 50%, and high NPL coverage.

  Weaknesses

  Retail asset quality still faces industry pressure, credit card business is under strain, and there is limited room for further decline in deposit costs.

  Comparison

  Compared with peers, China Merchants Bank has higher retail deposits per branch and stronger retail and wealth management capabilities; however, versus ICBC management's remarks, the probability of raising total returns is lower.

  Risks

  If fee income, NIM expansion, loan growth, or asset quality fall short of expectations, the rating and target price may come under pressure.

• China Merchants Bank- A (600036.SS)

  A-share listing of the same company

  Strengths

  Shares the same fundamentals and retail banking strengths as the H-shares.

  Weaknesses

  The report's valuation and target price are directed at the H-shares, while A-share performance is also affected by local valuation, liquidity, and investor base.

  Comparison

  The H-share valuation uses DDM and includes a 5% H-share premium; no separate target price is given for the A-shares in this report.

  Risks

  Also subject to NIM, asset quality, capital, and dividend policy risks.

Key data

• RatingOverweightJPMorgan maintains its Overweight rating on China Merchants Bank H-shares.
• Current priceHK$49.40As of 30 Mar 2026.
• Target priceHK$61.00Target date is 31 Dec 2026.
• Implied upside23.5%Calculated from the HK$61.00 target price and HK$49.40 current price.
• FY25 NIM1.87%Narrowed by 11 bps year on year, a smaller decline than the 17 bps narrowing in 2024.
• 4Q25 NPL formation1.20%Up from 0.96% in 3Q25, which management attributed to recognition of existing corporate loan risk.
• Property-loan NPL ratio4.64%Up 39 bps quarter on quarter in 4Q25.
• FY25 ROE13.4%Above the NFRA industry data of 8.2%; management pledged for the first time that ROE would not be below 10%.
• RWA growth8.8% / 9.5%Up 8.8% year on year under the standard approach in 2025 and 9.5% under the IRB approach; management expects 9-10% growth to continue.
• Retail customer growth+7% y/yRetail customer growth was strong in 2025, with Gold and Sunflower customers up 13% and private banking customers up 18%.

Impact & implications

For investors, the report reinforces China Merchants Bank's position as a high-quality retail bank in China's banking sector: earnings growth, asset quality, and NIM all show signs of improvement, supporting a relatively positive risk-reward profile; however, capital consumption, RWA growth, and pressure on retail asset quality will still cap expectations for more aggressive shareholder returns.

Risks

• Fee income growth falls short of expectations.
• NIM expansion or stabilization progresses more slowly than expected.
• Loan growth comes in below expectations.
• Asset quality deteriorates, especially if risks in retail, inclusive finance, consumer loans, or property-related exposures rise again.
• Continued rapid RWA growth and downward pressure on capital adequacy may limit dividend upside.
• Macro growth underperforms or geopolitical risks affect wealth management and capital markets businesses.

What to watch

• Whether 2026 revenue and profit growth improve from FY25's roughly -1% and +1% to the market's expected 4% and 2%.
• Whether corporate NPL formation in 1Q26 and later quarters confirms that the 4Q25 increase was a one-off event.
• Whether the slowdown in NPL formation in inclusive finance and consumer loans can continue.
• Whether NIM can stabilize in the second half of 2026 as management expects.
• Whether RWA growth continues to stay at 9-10%, and whether CET1 and the dividend payout ratio come under pressure.
• The pace of recovery in wealth management fee income, insurance distribution income, the impact of lower fund fees, and credit card business recovery.
• The progress of re-approval for CMB Investment's equity investment business and integration with the CMB International platform.
• Cross-border business growth driven by synergy between the Guangdong-Hong Kong-Macao Greater Bay Area and Wing Lung Bank.