BOC

Valuing the large China state-owned Banks using Gordon Growth Model

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Valuing China Banks using Gordon Growth Model

Introduction The Gordon Growth Model, or GGM, is a valuation method for calculating the intrinsic value of a dividend-paying stock. The model is particularly suitable for valuing mature companies with stable operations and sustainable growth in dividends. In this article, a valuation exercise is carried out using the GGM to estimate the intrinsic value of … Read more

BOC, ICBC, ABC, CCB and Citic Bank report double digit earnings growth for first three quarters of FY2021

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BOC, ICBC, ABC, CCB and Citic Bank report double digit earnings growth for first three quarters of FY2021

I have previously published estimates of the intrinsic values of the H-shares of Bank of China, Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank and China Citic Bank. In their latest quarterly financial reports, all five banks reported double digit earnings growth for the first 3 quarters of FY 2021: … Read more

Broker Recommendations and Target Prices for the H-share of the Bank of China (BOC)

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Bank of China Logo

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).

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I purchased H-shares of the Bank of China (BOC) for my Dividend Income Portfolio. Here are the reasons why.

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Bank of China Logo

Summary

In this article, I examine the stock valuation of the H-share of Bank of China (BOC 3988.HK) through the eyes of a Dividend Investor. Dividend Cash Flow analysis was used to evaluate Bank of China’s H-share (BOC 3988.HK). The Dividend Discount Model was employed to calculate the H-share Intrinsic Value, Expected Return on Investment, and its Margin of Safety.
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Introduction

Following my previous article on the H-shares of the Industrial and Commercial Bank of China (ICBC), I also recently purchased the H-shares of the Bank of China (BOC). Here, I would like to discuss the rationale behind the investment decision to add the H-shares of BOC for my dividend income portfolio.

Over the years, my approach to investing has evolved from the speculative growth and momentum style to a more conservative method, preferring stocks which provide attractive dividend income streams at inexpensive valuations. I used the following set of questions to help determine the investment worthiness of the H-share of the Bank of China (BOC):

  • Does the Bank of China (BOC) have a good long-term dividend track record?
  • Does the Bank of China (BOC) currently offer an attractive dividend yield (above the average yield of Hang Seng Index constituents)?
  • Is the current payout ratio of the Bank of China (BOC) sustainable?
  • What is the expected return on investment of the Bank of China (BOC) over a 10-year period? Majority of recommendations by financial analysts tend to have a 12 month time horizon. I find the 10-year period to be more suitable for a dividend income stock, especially one which is part of a retirement dividend income portfolio.
  • Does the H-share of the Bank of China (BOC) offer a sufficient margin of safety to the intrinsic value of the stock?
  • Are the H-shares of the Bank of China (BOC) considered attractive when measured against the traditional value investing yardsticks? A good dividend stock with inexpensive valuation will minimize the risk of capital impairment and increase the probability of capital gains.

With the above questions in mind, let us delve into the analysis of the Bank of China (BOC) to find the answers.

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