Summary
This article looks at the valuation of Chongqing Rural Commercial Bank shares listed on the Stock Exchange of Hong Kong (Ticker: 03618.HK). The Dividend Discount Model is used to estimate the share’s Intrinsic Value, Expected Return on Investment, and its Margin of Safety.
Introduction to Chongqing Rural Commercial Bank
Chongqing Rural Commercial Bank Co., Ltd., formerly Chongqing Rural Credit Cooperative, was founded in 1951 and has a 70-year history. Chongqing was selected as one of the first batch of pilot provinces and cities for the nationwide rural credit cooperative reform in 2003.
The rural commercial bank was established in 2008 as a limited liability joint stock company to acquire all assets and liabilities of 38 County (District) Rural Credit Cooperative Unions.
The bank’s H-share was successfully listed on the Main Board of the Hong Kong Stock Exchange in 2010, making it the first listed rural commercial bank in China as well as the first listed bank in western China.
The bank successfully listed on the main board of the Shanghai Stock Exchange in 2019, becoming China’s first rural commercial bank with A+H dual listing and the first bank with A+H dual listing in western China.
The main businesses of the bank are corporate finance, inclusive finance, retail finance, and financial markets:
- The corporate finance business primarily offers a wide range of corporate finance products and services to businesses and public institutions, government agencies, and financial institutions, such as corporate loans and deposits, trade financing loans, bills, and guarantees.
- The primary business of Inclusive Finance is to provide financial services to new agricultural business entities such as small and micro enterprises, farmers, and farmers’ professional cooperatives.
- The retail finance business consists of personal loan and deposit business, bank card business, and intermediary business.
- The financial market business consists primarily of capital operation, investment banking, and asset custody.
Dividend Discount Model
The Dividend Discount Model is one of several methods for determining stock value. The procedure is similar to the Discounted Cash Flow model, except that dividends are substituted for free cash flow as the cash flowing to the investor. One advantage of this method is that dividend information is easily accessible from the company’s financial reports. It is also my preferred method for valuing dividend-paying stocks. Dividends are tangible income for the investor and represent the return of investment and return on investment. Dividend cash allows the investor to reinvest the proceeds in the same stock or in other more appealing stocks, achieving the all-important compounding effect.
This article describes the use of the Dividend Discount Model to determine the Intrinsic Value, Expected Return on Investment, and Margin of Safety of Chongqing Rural Commercial Bank (03618.HK) shares listed on the Stock Exchange of Hong Kong.
