Is the valuation repair market starting? Among the four major banks, why did ABC's PB rate rise above 1 first?

On November 12th, Agricultural Bank of China’s stock price rose more than 4% at one point, with a total market value surpassing 3 trillion yuan for the first time, setting a new historical high. Since it first topped the A-share circulating market value champion in early August, the stock price of Agricultural Bank of China has continued to climb, with an increase of 68% year-to-date. On September 4th, the total market value of Agricultural Bank of China (A-shares + H-shares) surged strongly, successfully surpassing Industrial and Commercial Bank of China, becoming the new "universe bank."

(Agricultural Bank of China A-share daily K-line)

As the stock price continues to rise, Agricultural Bank of China has also become the first bank among the four major state-owned banks to have a price-to-book (PB) ratio above 1. Currently, Agricultural Bank of China has a PB ratio of 1.10, while Industrial and Commercial Bank of China, China Construction Bank, and Bank of China have PB ratios of 0.773, 0.737, and 0.7, respectively. Amid the long-standing predicament of state-owned banks trading below book value, Agricultural Bank of China has taken the lead, attracting market attention.

Tianfeng Securities believes that Agricultural Bank of China’s ability to be the first to reach a PB ratio of 1 is mainly due to its outstanding performance in financial market operations and the effective implementation of its county-level financial strategy. In the first three quarters of this year, Agricultural Bank of China’s operating income grew by 2.0% year-on-year, with impressive performance in the financial market, ranking first among the four major banks in net other non-interest income growth.

In addition to its excellent performance in financial market operations, Tianfeng Securities believes that Agricultural Bank of China’s fundamentals have four major highlights that provide a solid foundation for its valuation recovery, including increased credit expansion potential and stronger interest margin resilience.

Analysts point out that against the backdrop of a reshaped competitive landscape in the banking industry, the "ballast stone" position of state-owned banks is becoming increasingly prominent, and Agricultural Bank of China is expected to lead the valuation recovery trend of state-owned banks as a "pioneer."

From a more macro perspective, Everbright Securities research has found that the banking sector enters a seasonal "tailwind period" from November to January of the following year, with historical data showing that the absolute return probability during this period is as high as 70%-80%.

Financial Market Operations "Stand Out": The Key to Agricultural Bank of China’s Success

Tianfeng Securities pointed out in its research report that Agricultural Bank of China has performed outstandingly in financial market operations this year, which is an important support for its breakthrough of a PB ratio of 1.

From the financial report data, in the first three quarters of 2025, Agricultural Bank of China’s net other non-interest income grew by 31.7% year-on-year, leading China Construction Bank’s 31.0%, Industrial and Commercial Bank of China’s 27.6%, and Bank of China’s 22.2%. Notably, in the first quarter, while Industrial and Commercial Bank of China and China Construction Bank experienced significant negative growth in net other non-interest income, Agricultural Bank of China even achieved a counter-cyclical growth of 45.3%.

What draws even more market attention is that Agricultural Bank of China has the largest floating profit from changes in the fair value of financial assets among the four major banks.

In the first three quarters of 2025, Agricultural Bank of China achieved a floating profit of 8.5 billion yuan, higher than Industrial and Commercial Bank of China’s 4.2 billion yuan, while China Construction Bank and Bank of China recorded floating losses of 4.1 billion yuan and 2.7 billion yuan, respectively. Particularly in the first quarter, amid a continuous decline in the bond market, Agricultural Bank of China achieved a floating profit of 3.9 billion yuan, being the only institution among the four major banks to realize a floating profit

Behind this "counterintuitive" outstanding performance, Tianfeng Securities believes there are three main reasons:

First, the proportion of TPL accounts in Agricultural Bank's bond assets is low, and the incremental amount in a single quarter is small, which is relatively less affected by the adjustment of the bond market. Data shows that since the end of June 2024, the proportion of TPL accounts in Agricultural Bank has long remained below 4%, while the other three major banks are at 6%-8%. In the first three quarters of this year, Agricultural Bank's TPL account bond assets only increased by 7.2 billion yuan, far lower than the 20.06 billion yuan of China Construction Bank and 98.1 billion yuan of Bank of China. The single-quarter allocation scale in the first and third quarters was 37.3 billion yuan and -600 million yuan, respectively, which is also significantly lower than peers, indicating that its trading strategy during the market's significant adjustment period was relatively prudent.

Second, Agricultural Bank adopted a "duration control" strategy in the arrangement of TPL account bond assets. In the first half of 2025, the maturity structure of newly added TPL account bond assets in Agricultural Bank saw an increase of 18.7 billion yuan for maturities within 3 months, while a decrease of 22.6 billion yuan for maturities over 5 years. This helps to reduce the risk of significant negative fluctuations in fair value, keeping potential floating losses at a low level during the significant adjustment period of the bond market in the first quarter.

Third, Agricultural Bank accurately grasped the trading points of bonds. From the quarterly performance of fair value changes and gains and losses, Agricultural Bank achieved floating profits of 3.9 billion yuan, 1.1 billion yuan, and 3.5 billion yuan in the first, second, and third quarters, respectively. Unlike its peers, Agricultural Bank's floating profit performance during the bond market adjustment periods in the first and third quarters was better than during the bond market recovery period in the second quarter, indicating that it may have effectively bought at the interest rate peak during the rapid rise in bond market rates in February, forming an advantage of low holding costs.

Tianfeng Securities believes that the above three points mainly analyze why Agricultural Bank's trading portfolio can achieve better floating profits, but its excellent performance in the gold market income also contributed through realizing floating profits by selling old bonds.

Data shows: Due to the good floating profit situation of Agricultural Bank in Q1 2025, its effort to realize floating profits through selling old bonds in Q1 was not strong, with the contribution of single-quarter investment income to gold market income being only 40%, comparable to China Construction Bank and Bank of China, but significantly lower than Industrial and Commercial Bank of China. However, the contribution of investment income in Q2-Q3 2025 significantly increased to 76%, clearly higher than other major banks, which also indirectly confirms that Agricultural Bank may have a higher profit demand this year.

Four Key Fundamental Highlights Supporting Valuation Recovery

In addition to the excellent performance of its gold market business, Tianfeng Securities believes that Agricultural Bank of China has four fundamental highlights that provide a solid foundation for its valuation recovery.

First, there is greater potential for credit expansion. As a leader in the sinking strategy, Agricultural Bank of China has established a competitive advantage stronger than its peers through forward-looking layout and long-term deep cultivation. Especially in the context of the accelerated "village-to-branch" process, a total of 192 branches and sub-branches of Jilin Rural Commercial Banks were integrated and incorporated by Agricultural Bank of China in just September to October this year, laying the foundation for its county-level business expansion.

Second, the interest margin is more resilient. Although Agricultural Bank of China is currently facing industry-wide pressure of narrowing interest margins, with a net interest margin of 1.32% in the first half of 2025, 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. With the continued efforts in county-level business, this advantage is expected to become more solid and prominent, supporting the stabilization of net interest margin at low levels.

Third, the recognition of non-performing loans is strict and the non-performing loan ratio is lower. This provides a stronger safety margin for the asset quality of Agricultural Bank of China.

Fourth, the provision cushion is thicker. Sufficient provisions provide stronger protection for Agricultural Bank of China to cope with potential risks.

Tianfeng Securities also pointed out that as the year-end approaches, it cannot be ruled out that Agricultural Bank of China has certain performance and market value management demands.

Data shows that since the second quarter, the provision accrual intensity of Agricultural Bank of China has significantly decreased, with year-on-year growth rates of asset impairment losses from the first to the third quarter of 2025 being 2.6%, -3.0%, and -2.8%, respectively, achieving year-on-year growth in net profit attributable to the parent company of 2.2%, 2.7%, and 3.0%.

At the same time, from the first to the third quarter of 2025, the proportion of investment income to revenue for Agricultural Bank of China was 3.8%, 6.3%, and 6.2%, showing a strong profit-seeking demand.

Is the Valuation Recovery Trend of State-owned Major Banks Starting?

Market participants believe that Agricultural Bank of China being the first to reach a 1x PB is not an isolated event, but the beginning of the overall valuation recovery of state-owned major banks.

Tianfeng Securities stated that in the medium to long term, it is a trend for state-owned major banks to return to above 1x PB, with Agricultural Bank of China likely to be the "vanguard" to stabilize at 1x PB first.

From the competitive landscape, under the reshaping of the banking industry competition pattern, the "ballast stone" position of state-owned major banks is becoming increasingly prominent, and their competitive advantages are becoming more pronounced.

The 2023 Central Financial Work Conference clearly proposed "supporting state-owned large financial institutions to improve and strengthen, serving as the main force for the real economy and the ballast stone for maintaining financial stability." At the 2024 "924" press conference held by the State Council Information Office, the National Financial Supervision Administration clearly stated that "the state plans to increase core Tier 1 capital for six large commercial banks."

Data shows that the loan market share of state-owned major 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 expansions and insufficient capital replenishment, making asset expansion "beyond their capacity." The current competitive landscape of banks shows a more pronounced "Matthew effect" where "the strong get stronger," with regulatory resources and market resources likely to continue concentrating on leading banks From the perspective of policy support, fiscal injection will strengthen the capital strength of Agricultural Bank of China.

This year, Bank of China, China Construction Bank, Bank of Communications, and Postal Savings Bank have collectively received 500 billion yuan in support from the central government. According to the National Financial Regulatory Administration, under the guidance of "phased and batch" implementation, it is expected that Agricultural Bank of China and Industrial and Commercial Bank of China will advance capital injection arrangements after the increase in government bond quotas next year.

Tianfeng Securities stated, as the background of the restructuring of the A-share market ecology 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, confidence in Agricultural Bank of China maintaining a 1x PB can be held. The changes in the banking competition landscape will also spur changes in the investment pattern of bank stocks in the capital market, and Agricultural Bank of China, with its "operational code," is expected to become a trend leader in the return of state-owned large banks to above 1x PB.

The End of the Year is Just Right: Bank Stocks Enter Seasonal "Tailwind Period"

From a more macro perspective, the timing of Agricultural Bank of China breaking through 1x PB also coincides with the seasonal patterns of the banking sector.

Everbright Securities found through reviewing nearly a decade of banking sector trends that the probability of achieving absolute returns in November-December is 70%, and the probability in January of the following year is 80%, indicating that bank stock investment enters a seasonal "tailwind period." Data shows that the banking sector has a high win rate from November to January of the following year and is more likely to achieve better relative return performance.

The institution believes there are two main reasons:

First, important economic data for January-February is released in a consolidated manner, and the market information is limited at the beginning of the year. For the banking sector, January's financial data can serve as a reference, and there is a customary "good start" in credit at the beginning of the year, making the operational certainty of the sector relatively stronger.

Second, the economic work conference held in December before the year will deploy the economic work arrangements for the following year. In recent years, the market has had strong expectations for the introduction of "stabilizing growth" related policies from the Central Economic Work Conference, thus creating investment opportunities in traditional industries.

Tianfeng Securities also pointed out that the banking sector has a high win rate in the fourth and first quarters. Reviewing the quarterly performance from 2020 to 2024, the banking sector has a 37.5% share of quarters with both absolute and relative returns, and the performance of Agricultural Bank of China is also expected to benefit from this