* Business Summary

1. China Merchants Bank is a China-based commercial bank.

2. China as its main market.

3. The bank is operating its businesses through (1) = Wholesale Finance Segment; (2) = Retail Finance Segment and (3) = Other Segment

4. WHOLESALE FINANCE SEGMENT consists of SAVINGS and LOANS;SETTLEMENT and CASH MANAGEMENT SERVICES; TRADE FINANCE and OFFSHORE BUSINESSES; INVESTMENT BANKING; INTERBANK LENDING; BUYBACK and OTHER INTERBANK BUSINESS; ASSET CUSTODY BUSINESS; FINANCIAL MARKET BUSINESS and OTHER BUSINESSES.

5. RETAIL FINANCE SEGMENT includes SAVINGS and LOANS, BANK CARD SERVICES, WEALTH MANAGEMENT, PRIVATE BANKING and OTHER SERVICES.

6. OTHER SEGMENT consists of investment real estates and the operations of the Company’s subsidiaries, affiliated companies and joint venture companies.

    

* FY2016 Financial Data Analysis

• NET PROFIT MARGIN = 29.84%

• OPERATING MARGIN = 37.59%

• RETURN ON ASSETS = 1.12%

• RETURN ON EQUITY = 15.93%

• CASH FLOW PER SHARE = 3.12

• PRICE / CASH FLOW PER SHARE = 8.22

• DIVIDEND YIELD (5 YEAR AVERAGE) = 3.74%

• DIVIDEND GROWTH RATE (5 YEAR) = 13.28%

• PAYOUT RATIO = 29.29%

• EPS GROWTH (5 YEARS) = 8.93%

• CM Bank uses little or no debt in its capital structure.

• Analyzing CM Bank’s financial performance in 2016 – YoY, both dividends per share and EPS excluding extraordinary items growth increased 10.62% and 7.60%, respectively.

• When measured on a five year annualized basis, both dividend per share and earnings per share growth ranked in-line with the industry average relative to its peers.

* Our View on 3968.HK

1. Efforts have been made to transform CM Bank into asset-light bank over the past 12 months.

2. Market consensus also expecting that in the coming 5 years, the bank will further refine its capital, liabilities, revenue structure and operations.

3. Most upbeat about CM Bank’s cutting edge in retail business over its peers – hence, average profitability.

4. Media report in recent weeks suggested that, China Banking Regulatory Commission (CRBC) has advised banks to conduct a review on credit risks to overseas Merger & Acquisitions, particularly focusing upon lines of credits, loans and bonds etc.  Latest reports suggested that, those are routine normal practice + part of the overall financial system examination / cleanup process.  The policy makers are now in the latter stage of information collection and so far no significant negativity found during the examination process.

5. In my opinion, there are still valuation upsides.

6. Buy rating with near-term price target = HK$27.60, share price retreat provides buying opportunity.

7. Cut-loss price @ Weekly chart MA(20) = HK$20.70.

I, Michael Fung, am a licensed person under the Securities and Futures Commission. Until the date this commentary was published, neither I and/or my affiliates are the beneficiary of the securities mentioned herein or are entitled to any financial interests in relation thereto.

本人冯兆山为证监会持牌人士。截至本评论文章发表日止，本人及/或其有联系者并无持有全部提及之证券的所有相关财务权益.