Citi rates CCB (SHA:601939, HKG:0939) Buy, prc target $7.5


In a research report issued on May 2 before Singapore's sovereign investment company Temasek sold shares of China Construction Bank (SHA:601939, HKG:0939) (CCB) for approximately HK$10 billion, Citigroup gave a Buy rating and a price target of HK$7.5 to CCB. The price target represents 25.2% upside from HK$5.99, the price at which Temasek sold the CCB shares.

CCB's weak first-quarter net interest margin of 2.65% (down 11 basis points on quarter) was largely due to rising funding costs, Citigroup said. Deposit market remained increasingly competitive and deposit growth in the second quarter of the year will be slower than in the first quarter, according to CCB's management.

Citigroup said that the key downside risks that could prevent CCB's shares from reaching the target price include: a macroeconomic hard-landing in China which would result in a severe deterioration in credit quality; much later/slower pace of rate hikes leading to NIM staying lower for longer; and regulatory risks such as deregulation of lending and deposit rates, asymmetric rate hikes, and sudden tightening in capital requirements.

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