Bank of Communications A & H: Time to take a breather – downgrade BoCom-H to Neutral

BoCom-H has risen 34% YTD, outperforming MSCI China Banks by 12ppt. We expect BoCom to report robust revenue growth in 3Q26, which should support the share price in the near term. Nonetheless, we turn more cautious on BoCom-H amid the current rally for the following reasons: 1) BoCom-H offers the lowest dividend yield among H-share SOE banks, while its A-share dividend yield is 40bps above the A-share SOE bank average. 2) BoCom reported the largest h/h increase in its retail NPL ratio among H-share banks in 1H26, and continued asset quality pressure could limit upside to earnings growth. 3) The benefits from deposit repricing are likely to fade in 2H27, while BoCom's loan growth is the weakest among SOE banks, implying that its NII growth may lag peers in 2027. We continue to prefer SOE banks within China banks and expect them to outperform the index both in the near term and over the next 12 months. However, we tactically downgrade BoCom-H to Neutral from OW and advise investors to ro