Why can Agricultural Bank of China maintain a 1 times PB?

1. Behind the Surge in Agricultural Bank's Stock Price, Attention is Needed on Periodic Adjustment Pressure

From September 25 to October 22, 2025, Agricultural Bank achieved "14 consecutive up days," with its stock price hitting a historic high, and for the first time in seven and a half years, standing above a 1x PB. However, on October 23, after reaching a new intraday high, the stock price plummeted.

Looking back at the recent performance of Agricultural Bank, the short-term surge in stock price may be driven by market sentiment, and attention should be paid to the risk of periodic adjustments.

Specifically:

1. Agricultural Bank's increase in October reached 21.3%, the highest monthly increase since 2015, which is also rare among state-owned banks. Reviewing the monthly increases of state-owned banks since 2015, only Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), and Bank of Communications (BoCom) have each experienced a monthly increase of over 20% once, occurring in January 2018 for ICBC and CCB, and in June 2015 for BoCom. Therefore, as of October 22, with the monthly increase reaching a historic high, Agricultural Bank's stock price faces certain adjustment pressure.

2. Agricultural Bank's valuation has reached a periodic high, and the comparative advantage of its valuation safety margin has weakened. On October 17, Agricultural Bank was the first to break through the key 1x PB level, ending the long-standing situation of state-owned banks trading below book value. As of October 22, Agricultural Bank's PB reached 1.06x, while ICBC, CCB, Bank of China (BoC), BoCom, and Postal Savings Bank of China (PSBC) were at 0.74x/0.73x/0.67x/0.56x/0.70x respectively. The weakening of valuation advantages may reduce its attractiveness to funds seeking high safety margins.

2. Why Did Agricultural Bank Experience a Significant Adjustment in September, and Does It Mean That the Rise of Agricultural Bank is "Inflated"?

From September 5 to September 22, 2025, Agricultural Bank's stock price experienced a significant adjustment, with a cumulative decline of 11.1%, far exceeding other state-owned banks during the same period.

We believe this is mainly due to the overall adjustment of the banking sector in July and August, during which Agricultural Bank still significantly led its peers. After the market style switched, the willingness to realize profits accumulated during the rise became stronger, leading to concentrated release of adjustment pressure. Data shows that from July 11 to September 1, the banking sector overall fell by 7.0%, while Agricultural Bank surged by 11.6%.

Therefore, if Agricultural Bank's stock price experiences another adjustment in the future, it may still be mainly affected by two factors: first, the impact of market style rotation. Bank stocks have strong defensive attributes, and if market risk appetite rises in the future, a shift in funds may lead to fluctuations in bank stock performance. Second, there is an inherent demand for technical adjustments. The short-term surge in Agricultural Bank's stock price may lead some profit-takers to choose to "cash in" near key levels like 1x PB, resulting in a pullback after the stock price peaks.

However, we believe that an adjustment does not mean there are fundamental issues with Agricultural Bank, nor does it imply that the impressive rise this year is a "rootless tree" detached from fundamentals. It is normal for the market to experience periodic adjustments as Agricultural Bank stabilizes above 1x PB, but this is unlikely to change the long-term trend of its valuation center moving upward and returning to intrinsic value 3. In the medium to long term, it is a trend for state-owned major banks to return to above 1 times PB, with Agricultural Bank of China expected to be the "pioneer" to stabilize above 1 times PB first.

First, under the reshaping of the banking competition landscape, the "ballast stone" position of state-owned major banks is becoming increasingly prominent, and their competitive advantages are becoming more pronounced. We believe that the current competitive landscape of banks will see a more obvious "Matthew effect" where "the strong get stronger," with regulatory resources and market resources likely to continue concentrating on leading banks. In this context, Agricultural Bank of China, as a "leader" in the sinking strategy, has established a competitive advantage stronger than its peers through forward-looking layout and long-term deep cultivation.

Second, with good fundamentals and supportive capital injection, Agricultural Bank of China has stable ROE support. On one hand, although Agricultural Bank of China is also facing industry-wide pressure from narrowing interest margins, its core advantage in net interest margin remains unchanged, namely the high customer stickiness and low liability costs brought by deep cultivation of county-level customer groups. On the other hand, fiscal capital injection will solidify Agricultural Bank of China's capital strength, providing fuel for the bank to promote "village-to-branch" reforms, thereby empowering the expansion of county-level business.

Third, this year, Agricultural Bank of China has achieved several remarkable accomplishments in the capital market, which may lead to strong performance growth and market value management demands.

Investment suggestion: We remain optimistic about Agricultural Bank of China stabilizing at 1 times PB. In the short term, the banking sector has a higher win rate in the fourth quarter and the first quarter. Reviewing the quarterly performance from 2020 to 2024, the banking sector has both absolute and relative returns in the quarters, with the fourth quarter accounting for 37.5%. The market performance of Agricultural Bank of China is also expected to benefit from this. In the medium to long term, as the overall background of the A-share market ecology reshaping remains unchanged, and the core logic of the reshaping of the banking competition landscape and the highlighting of Agricultural Bank of China's competitive advantages remains unchanged, we can still have confidence in Agricultural Bank of China stabilizing at 1 times PB.

Risk warning: Accelerated decline in interest margins, deterioration in asset quality, stock price surge followed by a drop.

1. Behind the surge in Agricultural Bank of China's stock price, attention should also be paid to the pressure of periodic adjustments.

From September 25 to October 22, 2025, Agricultural Bank of China achieved "14 consecutive up days," with its stock price reaching a new historical high, standing above 1 times PB for the first time in seven and a half years. However, on October 23, after the stock price hit a new high during the day, it plummeted and turned to decline, with a single-day drop of 1.24%.

Looking back at the recent performance of Agricultural Bank of China, the short-term surge in stock price may be driven by market sentiment, and attention should be paid to the risk of periodic adjustments.

Specifically:

1. As of October 22, Agricultural Bank of China’s increase in October reached 21.3%, the highest monthly increase since 2015, which is also rare among state-owned major banks. Reviewing the monthly increases of state-owned major banks since 2015, only Industrial and Commercial Bank of China, China Construction Bank, and Bank of Communications have each experienced a monthly increase of over 20% once, occurring in January 2018 for ICBC and CCB, and in June 2015 for BOC. Therefore, as of October 22, after reaching a historical high in monthly increase, Agricultural Bank of China's stock price faces certain adjustment pressure
2. The valuation of Agricultural Bank of China has reached a temporary high, and the comparative advantage of valuation safety margin has weakened. On October 17, Agricultural Bank of China was the first to break through the key point of 1 times PB, ending the long-term situation of state-owned banks trading below net asset value. As of 10/22, the PB of Agricultural Bank reached 1.06 times, while the PBs of Industrial and Commercial Bank of China, China Construction Bank, Bank of China, Bank of Communications, and Postal Savings Bank were 0.74 times/0.73 times/0.67 times/0.56 times/0.70 times, respectively. The weakening of valuation advantages may reduce its attractiveness to some funds pursuing high safety margins.

2. Why did Agricultural Bank of China experience a significant pullback in September? Does this mean that the rise of Agricultural Bank of China has some "inflation"?

From September 5 to September 22, 2025, the stock price of Agricultural Bank of China experienced a significant pullback, with a cumulative decline of 11.1%, much higher than other state-owned banks during the same period.

We believe this is mainly due to the overall pullback of the banking sector in July and August, while Agricultural Bank of China still led the industry significantly. After the market style switched, the willingness to realize profits accumulated during the rise was stronger, leading to concentrated release of pullback pressure. Data shows that from July 11 to September 1, 2025, the banking sector overall fell by 7.0%, while Agricultural Bank surged by 11.6%.

Therefore, looking ahead, if the stock price of Agricultural Bank of China experiences another pullback, it may mainly be influenced by the following two points:

First, the impact of market style rotation. Bank stocks have strong defensive attributes. If policies such as "anti-involution" and new types of policy financial instruments show significant effects, in the future, during the process of market risk appetite recovery, funds may temporarily shift from high-dividend sectors to growth sectors with stronger "profit-making effects," leading to fluctuations in bank stock trends.

Second, the inherent demand for technical adjustments. Agricultural Bank of China has seen a huge increase in a short period, accumulating a lot of profit-taking positions. Some funds may choose to "cash in" near the key point of 1 times PB, and under technical selling pressure, this may trigger a rebound and subsequent decline in stock prices.

However, we believe that a pullback does not mean there are fundamental issues with Agricultural Bank of China, nor does it mean that the impressive rise of Agricultural Bank of China this year is a "rootless tree" detached from fundamentals. It is normal for the market to experience a temporary pullback while Agricultural Bank of China stabilizes above 1 times PB, but this is unlikely to change the long-term trend of its valuation center moving upward and returning to intrinsic value.

3. Where does the confidence in "stabilizing above 1 times PB" come from?

We believe that in the medium to long term, it is a trend for state-owned banks to return to above 1 times PB, and Agricultural Bank of China is expected to be the "vanguard" to stabilize above 1 times PB first. The reasons are as follows: First, under the reshaping of the banking industry's competitive landscape, the "ballast stone" position of state-owned large banks is becoming increasingly prominent, and their competitive advantages are becoming more pronounced.

On one hand, the central government has a clear positioning for state-owned large banks, places high importance on them, and provides full support.

1. The Central Financial Work Conference in 2021 clearly stated, "Support state-owned large financial institutions to improve and strengthen, serve as the main force in serving the real economy and maintain financial stability as a ballast stone."

2. At the "924" press conference held by the State Council in 2021, the National Financial Regulatory Administration clearly stated, "The state plans to increase core Tier 1 capital for six large commercial banks, which will be implemented in an orderly manner according to the idea of 'overall promotion, phased implementation, and one bank one policy.'"

This indicates that the central government not only emphasizes its importance in statements but will also consolidate the "ballast stone" position of state-owned large banks through actual resource support.

On the other hand, the reshaping of the banking industry's competitive landscape is accelerating, and the competitive advantages of state-owned large banks are expected to become even more pronounced.

In recent years, retail credit business has faced difficulties, and competition for corporate business in large cities is fierce. Under the scarcity of high-quality assets, credit demand in county areas has "emerged as a new force," becoming a "battleground."

Therefore, "extending downwards" has become a consensus among state-owned large banks. Moreover, state-owned large banks have obvious advantages in interbank competition due to their low funding costs, high brand trust, and rich product systems. Data shows that the loan market share of state-owned large banks has risen from 44.1% at the end of 2020 to 46.8% at the end of the first half of 2025.

In contrast, some joint-stock banks are hindered by risk accumulation from previous extensive expansion and insufficient capital replenishment, leading to a lack of strength in asset expansion. City commercial banks are facing severe survival pressure in multiple dimensions such as "volume, price, and risk."

Therefore, we believe that the current competitive landscape of banks will increasingly reflect the "Matthew effect" of "the strong getting stronger," with regulatory resources and market resources likely to continue concentrating on leading banks.

Against this backdrop, Agricultural Bank of China, as a leader in the downward strategy, has established a competitive advantage stronger than its peers through forward-looking layout and long-term deep cultivation.

Second, with a good fundamental situation combined with capital injection support, Agricultural Bank of China has stable ROE support.

On one hand, under the effective implementation of the county financial strategy, Agricultural Bank of China's fundamental advantages are significant and distinctive.

In our report "The Story of Agricultural Bank of China: Stock Edition" (September 16, 2025), we summarized the operational secret of Agricultural Bank of China as the "Three Good Formula + Four Highlights." The "Four Highlights" refer to the greater potential for credit expansion, stronger interest margin resilience, stricter bad debt identification with a lower bad debt ratio, and thicker provision safety cushions, thus building a robust and excellent fundamental situation for Agricultural Bank of China. Although the banking industry as a whole still faces certain pressures of interest margin narrowing, Agricultural Bank of China is no exception, with a net interest margin of 1.32% in the first half of 2025. However, we believe that the core advantage of Agricultural Bank of China's net interest margin has not changed, namely the high customer stickiness and low liability costs brought by deep cultivation of county customer groups. Furthermore, as county business continues to gain momentum, this advantage is expected to become more solid and prominent, supporting the stabilization of the low net interest margin On the other hand, fiscal capital injection will strengthen Agricultural Bank's capital strength and accelerate the empowerment of county-level business expansion.

This year, Bank of China, China Construction Bank, Bank of Communications, and Postal Savings Bank have collectively received 500 billion in capital injection support from the central government. According to the National Financial Regulatory Administration, under the guidance of "phased and batch" injections, we expect Agricultural Bank and Industrial and Commercial Bank to advance capital injection arrangements after the fiscal increase in national debt quotas next year. As of the end of the first half of 2025, Agricultural Bank's core Tier 1 capital adequacy ratio is expected to be 11.11%. If fiscal capital injection occurs next year, its capital strength will be further enhanced.

Since the second half of this year, Agricultural Bank has accelerated its participation in the "village-to-branch" reform process, with a total of 192 branches and sub-branches of Jilin Rural Commercial Banks being integrated and incorporated by Agricultural Bank from September to October alone. We believe that due to Agricultural Bank's solid foundation, the impact of incorporating rural credit institutions and village banks on its operational pressure may be relatively small, but it will help accelerate its county-level layout and expansion.

Therefore, if fiscal capital injection is realized next year, it will provide fuel for Agricultural Bank to advance the "village-to-branch" reform, thereby empowering county-level business development.

Thirdly, this year Agricultural Bank has achieved several notable accomplishments in the capital market, which may indicate strong performance growth and market value management demands. In recent years, under the leadership of an ambitious management team, the effectiveness of Agricultural Bank's county-level strategy has gradually emerged, and the operational advantages of county-level businesses have become increasingly prominent. Coupled with several impressive achievements in the A-share market this year, we believe that there is strong motivation throughout Agricultural Bank to promote business development, and its demand for profitability may be quite strong.

In summary, changes in the competitive landscape of the banking industry will also give rise to changes in the investment landscape of bank stocks in the capital market. With its "operational code," Agricultural Bank is expected to become a trendsetter for state-owned banks returning to a price-to-book ratio (PB) of over 1.

4. Investment Recommendation

We remain optimistic about Agricultural Bank stabilizing at a price-to-book ratio of 1. In the short term, the banking sector has a high win rate in the fourth quarter and the first quarter. Reviewing the quarterly performance from 2020 to 2024, the banking sector has both absolute and relative returns, with the fourth quarter accounting for 37.5%. Agricultural Bank's market performance is also expected to benefit from this. In the medium to long term, as the ecological reshaping of the A-share market remains unchanged, and the core logic of reshaping the banking industry's competitive landscape and highlighting Agricultural Bank's competitive advantages remains unchanged, we can still have confidence in Agricultural Bank stabilizing at a price-to-book ratio of 1.

5. Risk Warning

1. Accelerating decline in interest margins: If the central bank unexpectedly cuts interest rates, coupled with an intensified trend of fixed-term deposits, both sides of deposits and loans will significantly squeeze net interest margins.
2. Deterioration of asset quality: If the economic recovery is weaker than expected, the repayment capacity of the real sector continues to be under pressure, raising the risk of asset quality deterioration.
3. Stock price volatility: The company's stock price has increased nearly 20% in the past month, and there may be short-term risks of stock price volatility due to profit-taking.

Author of this article: Liu Jie and others from Tianfeng Securities, original title: "Why Can Agricultural Bank Stabilize at a Price-to-Book Ratio of 1?"