Broker Recommendations and Target Prices for the H-share of the Bank of China (BOC)
Introduction
In a previous article, I laid out the reasons why I added the H-share of the Bank of China (BOC) to my dividend income portfolio. In the same article I also described the discounted cash flow analysis which I used to estimate the intrinsic value of Bank of China (BOC) H-share, which worked out to be 4.207HK$ per share.
Not long after the article was posted on my blog, I came across a piece of news article on AAStocks.com which provided a summary of the latest Brokers' Recommendations and Target Prices for Bank of China H-share (3988.HK).
The table is reproduced below.
Summary Table of Broker Recommendations and Target Prices for Bank of China (BOC) H-share (3988.HK)
| Broker | Target Price (HK$) | Recommendation |
|---|---|---|
| CICC | 4.68 | Outperform |
| Morgan Stanley | 4.30 | Overweight |
| HSBC Global Research | 3.90 | Buy |
| Citigroup | 4.34 | Buy |
| ABC International | 3.98 | Buy |
| BofA Securities | 3.85 | Buy |
| BOCOM International | 3.50 | Buy |
| UBS | 3.90 | Buy |
| Credit Suisse | 3.50 | Outperform |
| CCB International | 3.70 | Outperform |
| Goldman Sachs | 3.25 | Neutral |
| Haitong International | 3.35 | Neutral |
| JP Morgan | 3.60 | Overweight |
| Jefferies | 2.74 | Hold |
| Macquarie | 3.40 | Outperform |
| Data Source: AAStocks.com |
Average of the Broker target prices for Bank of China (BOC) H-share and margin of safety
The average of the target prices from all the different brokers = 3.73HK$ per share. Out of the 15 broker recommendations, 12 called for Buy/Outperform/Overweight and only 3 called for Neutral/Hold. The majority of the Brokers are fairly optimistic on the prospect for the H-share of Bank of China (BOC).
On the flip side, the consensus target price of 3.73HK$ per share is about 9% lower than the intrinsic value of 4.207HK$ per share. The difference may be due to the different time frames referenced in the respective valuation models. While most Broker recommendations are based on a 12 month time frame, the discounted cash flow model which was used in my own analysis referenced a 10 year period.
Brokers expect Bank of China (BOC) to report 5.5% Year-on-Year net profit increase for 1st Half 2021
On the same day, AAStocks also reported that the Brokers on average expect Bank of China to report 1st Half 2021 Year-on-Year net profit growth to range from 4.8% to 8%. The average consensus forecast works out to be 5.5% increase in net profit compared to 1st Half 2020.
H-share of Bank of China (BOC) has sufficent margin of safety to allow an investor to have peace of mind and a good night’s sleep
Assuming that the average target price of 3.73HK$ per share is a reasonable estimate of the intrinsic value of Bank of China (BOC) H-share based on the collective wisdom of the different Research Houses, the margin of safety represented by the purchase price of 2.70HK$ is 27.6%. This is certainly a comfortable margin of safety which allows an investor in Bank of China (BOC) H-share to have peace of mind and a good night’s sleep.
Disclaimer:
This article is a record of the thinking behind a personal investment decision. It does not represent any recommendation to purchase any stock mentioned in the article. As always, readers are strongly advised to do their own due diligence before making any investment decisions.