China Construction Bank shows highest upside potential among Asia bank stocks

China Construction Bank Corp. had the highest implied upside to share price target among the largest lenders in Asia-Pacific as of April 19, an S&P Global Market Intelligence analysis shows.

The potential upside to the bank's share price — the percentage difference between the current stock price and analysts' consensus targets — was 28.5% over 12 months, compared to a median of 8.6% for banks in the sample, Market Intelligence data shows. A higher upside means that analysts estimate the stock has more value than what is currently reflected in the market price. There is no certainty that the stocks will reach the price targets set by analysts.

The bank's buy strength, representing the proportion of buy and overweight analyst recommendations to total recommendations, came in at 89.5%, against a median of 78.1% for the rest of the region's biggest banks.

The implied upside for three of the four largest Chinese banks by assets was above the sample's median, even as many analysts expect Chinese banks to face earnings decline in the quarter ended March 31 due to further potential interest rate cuts. Agricultural Bank of China Ltd.'s potential upside was 7.9%, making it the only one among the four banks to have a lower ratio than the sample's median.

"We remain cautious on the sector due to continued [net interest margin] decline, weak fees and asset quality pressure related to the property sector," Nomura analysts wrote in an April 18 note. "We believe undemanding valuations have largely been priced in."

Industrial and Commercial Bank of China Ltd. (ICBC), Asia-Pacific's largest bank by assets and in the world at the end of 2023, had an upside to price target of 16.4% with a buy strength of 85.0%. Bank of China Ltd. had an implied upside of 9.2%. Other Chinese banks that beat the median were Postal Savings Bank of China Co. Ltd. and China Merchants Bank Co. Ltd.

Nomura analysts said China Construction Bank and ICBC have "have strong capital positions and are defensive stocks with higher dividend yields and lower valuations."

China has set its 2024 GDP growth target at around 5% after the world's second-biggest economy beat a similar target and grew at 5.2% in 2023. Chinese authorities have been taking steps, including interest rate cuts, to support economic growth. In a recent easing move, the People's Bank of China in February cut its five-year loan prime rate to a record low to boost housing demand. For its part, the International Monetary Fund projects China's GDP to grow 4.6% in 2024.

– Download a spreadsheet with data featured in the story. – Read our recent story about how major South Korean banks face further increase in at-risk loans amid higher interest rates.

Banks in rest of Asia-Pacific

Analysts continue to expect Australia's four-largest banks to see their share price contract, with Commonwealth Bank of Australia's implied downside of 17.7% being the worst among the sampled banks, Market Intelligence data shows.

In an April 19 note, Ford Equity Research, however, projected CBA to outperform the market over the next six to 12 months, based on the bank's earnings strength, relative valuation and recent price movement. It said CBA has managed to produce a neutral trend in earnings per share and while recent estimates have been mixed, it has posted better-than-expected results.

Other major Australian banks showed similar implied downside trends. Westpac Banking Corp. and National Australia Bank Ltd. had an implied downside of 6.9% and 6.3%, respectively, while ANZ Group Holdings Ltd. had an implied downside of 1.8%.

Elsewhere, PT Bank Rakyat Indonesia (Persero) Tbk, the largest bank in Indonesia, had the second-highest implied upside among the region's largest banks, at 26.5%, even as the lender's earnings growth is forecast to slow in the coming years.

While 2024 net income at Bank Rakyat is expected to grow 10.6% to 66.47 billion rupiah from 60.10 billion rupiah in 2023, the growth will be lower than the 17% expansion seen between 2022 and 2023, Market Intelligence data shows.

Another Indonesian lender PT Bank Central Asia Tbk in the sample had an implied upside of 16.4%, with a buy strength of 80%.