China Merchants Bank: NIM Trend in Line but Wealth Management Business Under Pressure

H shares of China Merchants Bank, or CMB, dropped 5.2% in Hong Kong trading April 27 with the market likely disappointed by a 12.6% year-on-year contraction in first-quarter fee income. Wealth management and credit card service income both declined 13% and 6%, respectively, on weak market sentiment and falling credit card consumption from a relatively high base in the year-ago period. We believe the challenges are industrywide rather than company specific. As revenue and net profit performance were within our expectation, and given our view that margins would still be sluggish in first-half 2023, we leave our major assumptions unchanged and retain our fair value estimate for CMB at CNY 55 per A share and HKD 64 per H share. H-shares remain undervalued. We believe current revenue headwinds are largely priced in.