Taking everything into consideration, I still give it to Taifook securitY research powerhouse.
Sample this on the recommendation of BOC code 3988 as the stock to pick for now in the finance sector for those than have an eye on china financials.
BANK OF CHINA THE MOST UNDERVALUED CHINA BANKBank of China (H-shares)
Source: Bloomberg
Investment Summary
While the overhang of a looming share placement, in addition to market
doubts over future asset quality in the aftermath of a credit explosion, has
weighed on BOC's share price, we consider such factors as fully priced in
given that they are by no means unique to the counter. Currently trading at
1.6x our estimated FY10 P/B, BOC not only trails the 2.0x average for
other large state-owned banks, but is also trading at a discount to the 1.8x
FY10 P/B of its listed Hong Kong subsidiary BOC Hong Kong
(2388.HK, $18.90, BUY). A return to a historical 2.0x P/B would yield a
target price of $5.00.
BOC has beaten market expectations with a 41% yoy (39% qoq) rise in its
1Q10 profit to Rmb26,230m. Even more encouragingly, such strong
quarterly earnings were led by robust top-line growth in the form of 21%
and 39% jumps in net interest income and fee income, respectively, in
contrast to the previous year's performance when bottom-line improvement
resulted from a drop-off in asset impairment. Annualized ROE rose over 4
ppts from the level in FY09 to 20%, which we expect to be maintained until
recapitalization.
Thanks to an 8% qoq loan growth following a strong 50% yoy expansion in
the loan book last year, BOC was able to register robust 1Q10 net interest
income growth despite a continued 10-bp yoy contraction in net interest
margin to 2.04%. We expect the negative impact of further margin squeeze
to be minimal as interest rates stabilize at the current level and potentially
rise in the coming quarters. Meanwhile, fee income growth has been led by
bank cards, financial advisory, credit commitment fees and agency
commissions.
The trend in asset quality improvement has continued, with the impaired
loan ratio falling another 22 bps qoq to 1.30% while provision coverage
rose another 20.9 ppts to 172.1% in March. As at the end of 1Q09, BOC
had Rmb470b of exposure to local government financing vehicles that
accounted for 9.8% of outstanding loans, with the impaired loan ratio for
this segment standing at just 0.07%. Whilst BOC still carries US$3.9b in
American MBS on its treasury book, this has been covered by US$3.3b in
related provisions. The group's debt security exposure to the European
PIIGS was relatively small at Rmb4.8b.
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