Agricultural Bank of China - A: Moving to an OW Rating and a Rmb7.85 Price Target from Not Rated

Following a period of restriction, we are moving to an OW rating and a December 2027 price target of Rmb7.85 (OW rating and December 2027 price target of Rmb7.35 prior to restriction) from a Not Rated designation. We forecast profit growth of 5.9%/5.2%/5.4% in 2026-28E, respectively. ABC has the highest NPL coverage ratio among the Big 4 banks, which we think provides it with more of a buffer for future earnings, and the lowest overseas exposure among the Big 4, so it is less affected by recession risks in overseas markets; however, its CET1 is lower than the other Big 4 peers while RWA growth is higher. Our Dec-27 PT of Rmb7.85 is based on DDM calculations, using a cost of equity of 10.7%, a normalized ROE of 9.1% and a terminal date of 31 December 2028. Downside risks include lower-than-expected fee growth and NIM expansion and a deterioration in asset quality; upside risks include better-than-expected NIM expansion, loan and fee growth, and macro growth.