Goldman Sachs: It is rumored that ICBC and ABC will receive capital injection from authorities, which may lead to up to 7% earnings dilution

Goldman Sachs published a research report indicating that recent foreign media cited sources stating that Chinese authorities plan to inject 300 billion yuan into two major state-owned banks, ICBC (01398.HK) and ABC (01288.HK). Goldman Sachs stated that it does not comment on the rumor but assesses the potential impact, predicting that if true, it would lead to a dilution of earnings per share by 4% to 7% for both banks, with the expected dilution of net asset value by up to 2%, while the core Tier 1 capital ratio could increase by 54 to 61 basis points.

Goldman Sachs believes that new capital generally helps banks maintain growth and dividend distribution. If the injection is realized, large banks will be able to respond more effectively to the credit growth demand brought about by economic recovery and maintain or even increase dividends. It predicts that, assuming the risk-weighted asset density remains unchanged, ICBC and ABC could raise their dividend payout ratios by about 1.2 to 2.3 percentage points, maintaining the same per-share dividend while not affecting the growth of risk-weighted assets.

In terms of stock selection, Goldman Sachs prefers China Construction Bank (00939.HK) and Bank of China (03988.HK), which have completed capital replenishment and have more robust balance sheets, as well as China Merchants Bank (03968.HK), which has greater potential for dividend increases. Currently, it maintains a "neutral" rating on ICBC and ABC, with target prices of HKD 5.8 and HKD 4.95, respectively, believing that there is still uncertainty regarding the potential scale, timing, valuation, and impact on earnings per share and net asset value of the injection