Fair-Value Report — Bank of Chongqing (1963.HK)

Insider Signal

Note on H-share vs total share %: Bank of Chongqing has both H shares (HKEX: 1963) and A shares (SSE: 601963). DI filings on HKEX report percentages of H shares only. Dah Sing's 30.94% of H shares equates to ~13% of the bank's total capital across both share classes.

Verified Market Snapshot

All financials reported in CNY (the bank's functional currency). H share price in HKD. Exchange rate reference: 1 HKD ≈ 0.915 CNY as of late June 2026. Total assets cross CNY 1 trillion in FY2025.

Business Overview

Bank of Chongqing is a joint-stock commercial bank headquartered in Chongqing Municipality, southwest China. Founded in 1996 and listed in Hong Kong (H shares, 2013) and Shanghai (A shares, 2021), it serves retail, SME, and corporate clients across Chongqing and adjacent provinces. The bank crossed the CNY 1 trillion total assets threshold in FY2025 — a milestone that typically grants enhanced regulatory standing and marketing credibility in the mainland market.

Revenue is dominated by net interest income (~86% of reported 2025 revenue), with fee income remaining modest. The deposit franchise is concentrated in Chongqing, where it holds mid-tier market share; loan books skew toward local government-linked infrastructure, manufacturing, and property-related borrowers — exposures that carry tail risk in the current real-estate stress cycle.

Key operating metrics (FY2025, sourced from company reports and StockAnalysis):

Source: StockAnalysis.com / company filings (HKEX). Net profit attributable to ordinary shareholders. 2025 total net profit (including minority interests) reported at CNY 6,105M by the bank's annual report (+10.58% YoY).

Valuation

Method: Justified Price-to-Book (Gordon Growth Model)

For a profitable, regulated bank, the justified P/B framework is the primary anchor: P/B = (ROE − g) / (Ke − g). The current price is compared to the P/B implied by sustainable returns vs. the required cost of equity. A P/E multiple cross-check is provided below.

Key inputs:

• ROE (FY2025): Net profit ~CNY 5,654M / average equity ~CNY 64.9B ≈ 8.7%. Using HKD-reported figures (net income HKD 6.25B / equity HKD 70.5B) = 8.9%. We use ~9% as the base.
• Cost of equity (Ke): Risk-free ~4.5% (US 10Y proxy), China H-share equity risk premium 7–9% (opacity, governance, credit concentration, A-H dislocation). Measured beta of 0.34 is distorted by thin H-share trading. We apply a bottom-up Ke of 11–13.5% across scenarios rather than CAPM.
• Long-run growth (g): Tied to China nominal GDP trajectory and bank sector ROE retention; 2–4.5% across scenarios.

Book value anchor: HKD 16.11 per H share (FY2025, per StockAnalysis / company filing). At current HKD 7.44 the stock trades at 0.46× book, a level that in isolation implies the market prices ROE declining to ~7.4% indefinitely — below the bank's demonstrated 8.7–9% and the 2025 EPS growth of +11%.

P/E Cross-Check

Chinese regional bank H shares typically trade at 4–7× trailing P/E given structural sector overhangs. At sector-median 6.5×:

6.5× × HKD 1.40 EPS = HKD 9.10 — consistent directionally with the P/B base case, providing a lower-bound check.

Dividend Yield Support

The proposed DPS of CNY 0.4602 (≈ HKD 0.503) represents a payout ratio of ~30% on attributable profits, sustainable even if earnings fall 40%. At HKD 7.44 the yield is 6.76% — a meaningful income floor and an implicit put on further downside. Chongqing Rural Commercial Bank (3618.HK), the closest local peer, yields 6.21% at a higher absolute price.

Reverse Read

At HKD 7.44 (0.46× BV), using Ke = 12% and g = 3.5%, the market implicitly prices ROE at ~7.4% — a 150 bps haircut to actual FY2025 performance. This implies either a persistent NIM squeeze or a meaningful NPL cycle. Given that NPLs were 1.20% as of 2024 and total assets grew 20.7% in 2025 (now > CNY 1 trillion), the bear-case is priced in but not certain.

Peer Comparison

Chinese regional bank H shares, June 2026 (prices as of date noted; book values estimated or sourced from financial aggregators):

P/B for peers estimated from market/book data; direct comparisons should be treated as indicative. Guizhou Bank and Jiujiang are weaker peers with lower ROEs and/or governance concerns. Chongqing Rural is the most direct geographic peer — Bank of Chongqing trades at a slight premium (P/E 5.30 vs 4.92) consistent with its higher asset quality and stronger management track record. Source: StockAnalysis.com, June 2026.

Conclusion — Speculative Buy

Bank of Chongqing is a financially improving, dividend-paying Chinese regional bank trading at a deep discount to tangible book (0.46×) and a low P/E (5.30×) that prices in persistent ROE deterioration which has not yet materialised in the reported numbers. The base-case justified P/B of 0.69× implies a share price of HKD 11.08, and the probability-weighted estimate is HKD 10.49.

The insider signal — Dah Sing Bank's off-market block acquisition of 30 million H shares at ~HKD 8.05 on 24 June 2026, the day after the AGM that confirmed a CNY 0.4602 dividend — is a meaningful secondary confirmation from a strategic investor with 19 years of proximity to the bank's operations. Dah Sing is not acting as a custodian or broker; it is an economic owner increasing economic exposure. The timing (post-AGM, post-dividend confirmation) suggests conviction rather than window dressing.

This is rated Speculative Buy rather than a higher conviction "Moderate Buy" because: (1) specific 2025 NPL and CET1 figures were not independently verified at time of writing; (2) Chinese real estate credit stress has not fully cleared; (3) H shares structurally trade at discounts to A shares and rarely rerate to book. Investors should size accordingly.

Base fair value: HKD 10.50 | Rating: Speculative Buy | Price as of 26 Jun 2026: HKD 7.44

Key Risks

• China real-estate cycle: Chongqing has significant local-government and developer debt. A second wave of NPL recognition could sharply compress earnings and require provisioning that eats into capital.
• NIM compression: Chinese banks have faced sustained net interest margin compression from PBOC rate cuts. Bank of Chongqing's NIM (not independently verified for 2025) faces headwinds from falling loan yields and sticky deposit costs.
• Capital dilution: Total assets grew 20.7% in FY2025 — significantly outpacing internal capital generation. The bank may need equity issuance to maintain capital ratios, diluting H share value.
• Data opacity: 2025 NPL ratio and CET1 tier-1 ratio not independently verified at time of writing (2024 figures: NPL ~1.20%, CET1 ~11.5%). Any material deterioration would shift the valuation toward the bear case.
• H-A structural discount: H shares historically trade at a persistent 20–40% discount to A shares due to capital controls and investor base differences. A rerating to book is unlikely without structural liberalisation.
• Macroeconomic: US-China trade tensions, Chongqing's heavy industrial/infrastructure base, and sovereign credit risk are systemic factors that weigh on all Chinese regional bank valuations.
• Dah Sing's motive opacity: The off-market nature of the purchase means the counterparty and true commercial rationale are not public. While we assess it as strategic accumulation, a forced or relationship-driven transaction cannot be fully ruled out.

Sources

• HKEX Disclosure of Interests — Bank of Chongqing (1963.HK), event date 2026-06-24 (Futunn news, HKEX SDI system)
• Bank of Chongqing 2025 Annual Report highlights (Minichart.com.sg, April 2026)
• StockAnalysis.com — 1963.HK financials, balance sheet, income statement (accessed June 2026)
• StockAnalysis.com — 3618.HK, 6199.HK, 6190.HK peer data (accessed June 2026)
• Yahoo Finance / Bloomberg — 1963.HK price history and institutional data
• Dah Sing Bank Wikipedia / Dah Sing Banking Group 2025 investor materials
• EY — Listed Banks in China: 2024 Review and Outlook (2025)