The company's recent situation

Recently, China Merchants Bank held the 2024 Wealth Partners Forum. In his opening speech, Governor Wang Liang proposed “a preferential policy of 100% discount on the purchase rate of retail consignment funds will be implemented.”

reviews

We estimate that this rate discount will drag down CMB's annual revenue by no more than 0.2%. We believe that the 10% discount on the purchase rate is mainly for subscribing to stock fund shares, not including subscribing to key initial funds. Using 2023 data, the CMB affiliate fund flow rate is about 0.3%, limited to data availability. We roughly assume that the subscription rate is fully discounted, then the discounted flow rate is about 0.08%-0.15%. The static estimate drag on revenue is 0.6-0.8 billion yuan, accounting for 0.17%-0.24% of revenue and 0.4%-0.5% of net profit. Furthermore, the decline in deposit interest rates has increased the attractiveness of wealth products, and may lead to an increase in fund sales in 2024, hedging the impact of discounted rates.

Fee reduction is in line with industry trends. Active fee reduction or marginal impact is an option with less marginal impact at this point. We believe that in the medium to long term, leveling the rate levels with independent consignment agencies may attract more rate-sensitive customers:

1. The increase in online transaction volume has weakened the significance of the original differentiated rate system. The return of end customers to direct management by the head office may accelerate this process. Furthermore, the release of production capacity by account managers will also hedge the impact of fee reduction to a certain extent. In 2020, CMB began gradually implementing a 10% discount on some fund purchase rates and creating a differentiated online and offline rate system, mainly due to the high service costs of offline account managers. However, as the company actively promotes digital transformation and the share of online business customers and transaction volume, in the first half of 2024, the company will return customers under 0.2 million yuan to direct online management at the head office and introduce more convenient payment and social security fund inquiries to improve the high-frequency financial scenario. We judge that these measures will continue to enhance the transaction contribution of online channels. Even if the previous differentiated rate system is maintained, the proportion of customers enjoying 10% off will gradually increase. 2) After the end customer head office is directly managed, account managers can obtain more high-value users, increase in average AUM per household, and increase in transaction volume due to refined management or hedge the impact of rate discounts.

2. Currently, fund sales and sales revenue are at a relatively low point. The revenue structure accounts for a high share of stock revenue, a low share of traffic revenue, and a high proportion of low-rate products in terms of product structure. Therefore, the marginal impact of implementing rate discounts is less than during the current period of high market popularity.

The demonstration effect may accelerate the decline in fund flow rates in the industry, forcing buyers' investment transformation (continued text...).

Profit forecasting and valuation

Keep profit forecasts, valuations, and outperforming industry ratings unchanged. Currently A shares and H shares are traded at 0.8x/0.8x, 0.8x/0.7x 2024E/2025E P/B. Maintain A and H target prices of $38.99 (1.0x/0.9x 2024E/2025E P/B and 13.8% upside) and HK$35.35 (corresponding 0.9x/0.9x 2024E/2025E P/B with 4.4% upside).

risks

Progress in macroeconomics, capital market recovery, and residents' risk appetite restoration fell short of expectations.