Stock Valuation: China Citic Bank Corp Ltd (601998)

Name of Company Country of Origin/ Exchange Traded Sector Stock Price
CHINA CITIC BANK CORP LTD Hong Kong/
HKSE
Financial Services – Banks – Banks – Regional – Asia HKD5.01
@ 01 Oct 2018
COMPANY PROFILE China Citic Bank Corp Ltd operates as a commercial bank in China. It provides corporate and personal banking services, asset management, finance leasing and non-banking financial services. It also conducts treasury business.

China Citic Bank, or Citic, is a leading commercial bank. Headquartered in Beijing, it offers a full range of commercial banking services, with 1254 outlets in 125 cities in China, and branches in Hong Kong, Macau, New York, Los Angeles, and Singapore. The bank is the tenth-largest nationwide listed commercial bank in China in terms of 2016 total assets.

Stock Code 601998
Stock Valuation Below

China Citic Bank Price to Book

Price to Earnings, Price to Sales and Price to Cash Flow ratios all value a company based on what it is generating (i.e. profits, sales or cash flow). Price to Book ratio is different in that it values a company based on what it owns (i.e. its net assets). This is usually a suitable valuation indicator for a financial institution, which frequently revalues its assets and liabilities, or a company with huge asset base e.g. utilities company.
At the price of HKD5.01 as at 01 Oct 2018, China Citic Bank Corp Ltd is trading at a Price to Book Ratio of 0.5 times current book value.  This is a 15.0% discount to current fair Price to Book Ratio of 0.6 times.
Is the stock undervalued? One should not just look at one indicator to determine the fair value of a stock.
ProThinker believes in using a combination of valuation methods to decide whether a stock is over or undervalued? The five ratios we use are Price to Earnings, Price to Sales, Price to Cash Flow, Price to Book and Dividend Yield. We use multiple methods to value a stock because each has its benefits as well as shortcomings. Price to Earnings and Price to Cash Flow Ratios relate stock price to profitability but are meaningless when the comany has negative earnings or cash flows. Price to Sales Ratio is more stable because sales are never negative. However, this does not tell us whether the company is able to sell profitably. Price to Book Ratio gives us an indication as to how much we are paying for the company’s assets but it is not directly related to the company’s profitability. Dividend Yield cannot be used for companies that are paying little to no dividends.
While it is important to value stocks based on multiple valuation methods, this often leads to differing views on valuation. One indicator may suggest that a stock is overvalued while another suggest that it is undervalued. This does not help an investor who needs to make a definite decision whether to buy, hold or sell the stock. That is why we advocate the use of a Composite Valuation Indicator, which is derived from the best combination of the five indicators above. A Composite Valuation Indicator will give you ONE conclusion on whether a stock is under or over valued.
To find out more about our valuation methodology, click here. 
Source of Data: Company description, historical financial statements data and price data are from gurufocus.com or moneycontrol.com. Estimates are from marketscreener.com – Thomson Reuters.
Disclaimer: This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither ProThinker nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of ProThinker. Copyright(c) 2018. All rights reserved.

 

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