Stock Valuation: China Everbright Bank Co Ltd (601818)

Name of Company Country of Origin/ Exchange Traded Sector Stock Price
CHINA EVERBRIGHT BANK CO LTD China/
SHSE
Financial Services – Banks – Banks – Global CNY3.56
@ 07 Aug 2018
COMPANY PROFILE China Everbright Bank Co Ltd is engaged in the provisioning of corporate and retail deposits, loans and advances, settlement, treasury business and other financial services as approved by the China Banking Regulatory Commission.

China Everbright Bank Co Ltd is a full-service bank with operations mostly in mainland China. It has been increasingly present in parts of Asia, including Hong Kong and South Korea, and on the Internet through its online and mobile platforms. A core part of its business model is the large-asset concept offered to corporate clients, which integrates traditional credit resources with investment banking, inter-banking, asset management, and the leasing business. Most of the bank’s income is generated through net interest income, followed by fees and commissions. A majority of its interest-earning assets are in loans and advances, and loans to the manufacturing, real estate, and wholesale and retail trade industries constitute the largest portions of the bank’s loan portfolio.

Stock Code 601818
Stock Valuation Below

China Everbright 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 CNY3.56 as at 07 Aug 2018, China Everbright Bank Co Ltd is trading at a Price to Book Ratio of 0.6 times current book value.  This is a 18% discount to its historical average Price to Book Ratio of 0.7 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: Charts are from ProThinker Stock Report. Company description, historical financial statements data and price data are from gurufocus.com. Estimates are from gurufocus and/or 4-traders.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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