---
endpoint: analytics
pattern: Financial Services
status: done
latency_ms: 216967
conversation_id: a3902959-3d89-499b-969e-5444093f30da
citations: 0
created: 2026-05-31 20:23:55Z
---

# How does ICBC’s valuation compare to peers, and what justifies its premium/discount?

# ICBC Valuation vs Peers — Premium/Discount Justified by CLSA's Framework

## 1. Headline Valuation Snapshot (CLSA's 13-Jan-2025 Outlook)

CLSA values all Chinese banks via a single-stage Gordon Growth Model on price-to-book (PB), so the premium/discount answer ultimately routes through three inputs: **sustainable ROE, cost of equity (COE), and long-term growth**. The current comp picture across the Big-4 megas plus higher-multiple peers is below.

| Bank | Ticker | Rating | TP (LCY) | 12m-fwd PE | 12m-fwd PB | 25CL ROE | 24CL Div Yield |
|------|--------|--------|----------|-----------|-----------|----------|----------------|
| **ICBC (H)** | 1398 HK | O-PF | HK$5.20 | **4.5x** | **0.41x** | **10.1%** | **7.3%** |
| **CCB (H)** | 939 HK | O-PF | HK$6.20 | 4.1x | 0.40x | 9.4% | 6.8% |
| CMB (A) | 600036 SH | O-PF | Rmb43.80 | 6.6x | 0.88x | 13.8% | 5.1% |
| Bank of Jiangsu (BOJS) | 600919 SH | O-PF | Rmb10.20 | 5.2x | 0.68x | 13.8% | 5.4% |
| Bank of Chengdu (BOCD) | 601838 SH | O-PF | Rmb18.60 | 5.2x | 0.85x | 17.4% | 5.3% |
*Source: CLSA "2025 Outlook: Redux+", 13 Jan 2025* [2]

**Key takeaway: ICBC trades broadly in line with CCB at the bottom of the PB stack (~0.40–0.41x), while joint-stock (CMB) and regional banks (BOJS, BOCD) command 2x–2.2x the PB multiple. ICBC's discount to those higher-multiple peers is structural, not transient — and CLSA's framework attributes it cleanly to ROE.** [2]

## 2. How ICBC's PB Multiple is Built (Gordon Growth Decomposition)

The 0.42x sustainable PB anchor (from CLSA's July-2024 NDR pricing model, which still drives the current TP framework) is derived from:

- **Sustainable ROE: 8%**
- **Cost of equity (COE): 13.6%**
- **Long-term growth: 4%**
- → PB = (ROE − g) / (COE − g) = (8% − 4%) / (13.6% − 4%) ≈ **0.42x**

This is the *fair-value* multiple CLSA assigns ICBC and is the lowest sustainable-ROE assumption applied across their China bank universe. [7]

Now compare against the higher-multiple peers (same outlook doc, Jan 2025):

| Bank | Sustainable ROE | COE | LT Growth | Target PB |
|------|----------------|-----|-----------|-----------|
| **ICBC** | **8.0%** | **13.6%** | **4.0%** | **0.42x** |
| Bank of Chengdu | 14.1% | 14.7% | 5.0% | 0.93x |
| Bank of Hangzhou | 13.8% | 15.1% | 5.0% | 0.87x |
| Bank of Nanjing | 11.5% | 13.1% | 5.0% | 0.80x |
| Changshu Rural | 11.4% | 12.4% | 6.0% | 0.84x |
*Source: CLSA "2025 Outlook: Redux+", Figure 10 — Valuation assumption changes* [2]

**The math itself explains the discount**: regional banks are awarded **6pp higher sustainable ROE** (~14% vs 8%) at *similar* COE, which under the Gordon formula doubles their target PB. ICBC isn't being penalised by an unusual COE — its **COE (13.6%) is actually mid-range, lower than Hangzhou's 15.1%**. The premium/discount story is overwhelmingly an ROE story. [7][2]

## 3. ICBC's Multi-Year Financial Path (CLSA Estimates)

| Year | EPS Growth (% YoY) | PE (x) | PB (x) | Div Yield (%) | ROE (%) |
|------|--------------------|--------|--------|---------------|---------|
| 2022A | 2.2 | 3.9 | 0.4 | 8.1 | 10.7 |
| 2023A | 0.8 | 4.1 | 0.4 | 7.6 | 10.0 |
| 2024CL | 0.7 | 4.1 | 0.4 | 7.7 | 9.4 |
| 2025CL | 7.0 | 3.8 | 0.3 | 8.2 | 9.4 |
| 2026CL | 7.9 | 3.5 | 0.3 | 8.8 | 9.5 |
*Source: CLSA ICBC NDR takeaways, 18 Jul 2024* [8]

ROE is forecast to compress from **10.7% (2022A) to 9.4–9.5% (24–26CL)** — the trough into which CLSA's 8% "sustainable" assumption bakes in further normalization. This trajectory is the *quantitative* justification for the PB discount: ROE is migrating toward COE, and any multiple > 1x would require ROE > COE in steady state. [8]

## 4. Why ICBC Trades at a Discount to CMB / Regionals (the Justification Bundle)

### a) Structural ROE gap
- ICBC steady-state ROE 8% vs CMB ~13.8% (25CL), BOCD ~17.4%. The ~6pp ROE gap mechanically translates into a ~2x PB gap via Gordon. [2]
- Drivers: state-bank scale forces ICBC into mass-market corporate lending, mortgages, and government-rate-driven NIM dynamics — a lower-margin, lower-fee-mix book than CMB's affluent-retail/wealth franchise, which earns ROE > COE and therefore a >1x multiple. [2]

### b) Persistent NIM compression
- CLSA's July-2024 NDR documents 1Q24 NIM at 1.48%, with **downward pressure persisting in 2Q24**, partially offset by CASA deposit rate regulation and reduced deposit rates. The reduction in deposit rates by all six state banks (Jul-2024) is a margin defense, not a margin expansion mechanism — so NIM headwinds are structural. [9]
- The narrative is "downward pressure on NIM continues; pressure persists on 2Q net fee income; NPL ratio largely stable; provision coverage stable" — a **flat-to-down ROE story**, which is exactly what the 8% sustainable ROE assumption captures. [9]

### c) Capital dilution risk (the "second batch" overhang)
- In March 2025, CCB, BOC, BOCOM, and PSBC announced **Rmb520bn total recapitalisation** via A-share private placements to the MoF (Rmb500bn) plus other SOEs. Issuing PB ranged from **0.67x–0.76x** with premiums of **8.8%–21.5% over A-share** but **36%–49% over H-share** closing prices. [12]
- The dilution is real: post-injection ROAE drops by 18–74 bps and EPS by 4.3%–17.2% across the four banks; H-share div yields compress (CCB H: 6.5% → 6.2%; BOC H: 5.7% → 5.2%; BOCOM H: 5.9% → 5.0%; PSBC H: 5.7% → 4.7%). [11]
- Critically, "**four banks are in the first batch, and leaves ABC and ICBC to the second batch in 2026**, which we estimate at another Rmb500bn." → ICBC carries **forward-dated dilution risk** that CCB has already absorbed in 2025. This is the marginal reason an H-share investor could prefer CCB > ICBC near-term despite their similar PB, and explains why CLSA's TP on **ICBC H is HK$5.20 vs current HK$5.90 (downside ~-12%)** while CCB H is HK$6.20 vs HK$7.30 (downside ~-15%). Both names have moved above CLSA TPs; the rating is O-PF (relative outperform within sector) rather than absolute Buy. [1][10]

### d) The H-share vs A-share split
- ICBC-A trades at Rmb7.09 (TP Rmb6.70, downside ~-5.5%); ICBC-H at HK$5.90 (TP HK$5.20, downside ~-12%). [1]
- The H-share traditionally trades at a discount to A-shares — when CLSA modelled CCB/BOC recapitalisation, CCB-H sat at a **49% discount to CCB-A**, BOC-H at **42% discount** — and the H-share is where the dividend yield premium is captured. The ~6.8–7.3% H-share dividend yield is *the entire investment case* for the megas in CLSA's framework. [12][11]

## 5. Why ICBC Still Earns an Outperform Despite the Discount

CLSA's strategy thesis is explicit: **"a steady dividend yield remains the most important yardstick"** for 2025, given growth differentiation is muted and macro/policy uncertainties are elevated. [6]

- **Earnings stability + low dilution risk relative to first-batch peers** make ICBC-H attractive on a *yield-defense* basis vs CCB-H, which has already absorbed dilution. Note CLSA flags both **CCB(H) and ICBC(H) as "Larger" dilution risk** in their Jan-2025 table — but ICBC's dilution event is dated 2026, giving a temporal arbitrage window. [3][4]
- Top picks among megas remain "ICBC (H) and CCB (H), as well as CMB (A), Bank of Jiangsu, and Bank of Chengdu" — i.e., **a barbell of low-PB/high-yield megas + high-ROE regional/joint-stock names**. [5]
- Optionality scenarios where ICBC's discount narrows: **treasury yield slump (regional banks largest beneficiary), dividend payout hike, property price stabilisation, equity market boom** (last two would favor CMB/PAB more than ICBC). The first two are the ones most directly relevant to ICBC. [5]

## 6. Sector / Macro Risks That Anchor the Discount

CLSA's risk framework flags these as the reasons ICBC's COE remains stubbornly high at 13.6%, capping the achievable PB:

- **Macro-linked loan demand and credit quality** (property market weakness driving NPL debate)
- **Provisioning pressure** as the biggest swing factor to profit growth
- **NIM compression from rate cuts and deposit/loan competition** — the dominant near-term headwind
- **Fee business regulation** (mutual fund and insurance distribution rules)
- **Regulatory direction toward "strong financial regulations"** which may lower ROE permanently
- **ESG/anti-corruption headline risk** as China continues its anti-corruption drive [13]

## 7. Bottom Line

ICBC trades at **0.41x PB and 4.5x PE — virtually tied with CCB at the discount end of the China-banks PB stack — vs CMB at 0.88x and regional banks at 0.74x–0.95x**. CLSA's Gordon Growth model fully justifies this discount via a structurally lower **sustainable ROE assumption (8% vs 11–14% for joint-stock/regionals)** at a comparable COE. The discount is not a market mispricing — it is the correct multiple for a bank whose ROE is converging toward its COE.

What the megas *do* offer in compensation is **the sector's highest dividend yield (ICBC-H at ~7.3% 24CL, rising to 8.2% in 25CL on flat EPS)**, which is the core thesis CLSA cites for keeping ICBC at Outperform. [2][8] The two near-term risks that could narrow OR widen the discount: (1) the 2026 "second-batch" recapitalisation that will dilute ICBC just as CCB completes its absorption, and (2) NIM stabilisation if LPR reform delivers better predictability rather than continued cuts. [10][9]

The current share price (HK$5.90) is above CLSA's TP (HK$5.20), implying ~12% downside — the absolute call is cautious, but on a **relative within-sector basis** ICBC remains a preferred mega for yield-defensive positioning. [1]

---
**Sources**
[1] China banks (Transfer of coverage) — CLSA (6 Jun 2025) — 607961079LinqAlpha.PDF
[2] China financials (2025 Outlook: Redux+) — CLSA (13 Jan 2025) — 607947966LinqAlpha.PDF, recommended stocks table (Figure 7) + valuation assumptions (Figure 10)
[3] China financials (2025 Outlook: Redux+) — CLSA (13 Jan 2025) — Dividend yield & dilution risk table
[4] China financials (2025 Outlook: Redux+) — CLSA (13 Jan 2025) — Dividend yields paragraph
[5] China financials (2025 Outlook: Redux+) — CLSA (13 Jan 2025) — Top picks & upside scenarios
[6] China financials (2025 Outlook: Redux+) — CLSA (13 Jan 2025) — Investment strategy (defensive, dividend yield)
[7] ICBC – O-PF (NDR takeaways) — CLSA (18 Jul 2024) — Valuation details (0.42x PB / 8% ROE / 13.6% COE / 4% LT growth)
[8] ICBC – O-PF (NDR takeaways) — CLSA (18 Jul 2024) — Financials table 22A–26CL
[9] ICBC – O-PF (NDR takeaways) — CLSA (18 Jul 2024) — NDR takeaways (NIM, dividend yield 7.7%, interim div)
[10] China banks sector (Recapitalisation plans unveiled) — CLSA (30 Mar 2025) — Second-batch ABC/ICBC for 2026 (~Rmb500bn estimate)
[11] China banks sector (Recapitalisation plans unveiled) — CLSA (30 Mar 2025) — Recapitalisation impact table (PE/PB/Div yield pre vs post)
[12] China banks sector (Recapitalisation plans unveiled) — CLSA (30 Mar 2025) — Issuing PB / premium detail by bank
[13] ICBC – O-PF (NDR takeaways) — CLSA (18 Jul 2024) — Investment risks

