Merchants Bank gets good pitch

China Merchants Bank, the mainland's sixth-largest commercial lender by assets which is seeking a US$2 billion listing in Hong Kong, probably will enjoy fast profit growth from this year to 2008, according to a research report by China International Capital Corp, one of the lender's underwriters.

Net income would rise 46 per cent this year to 5.5 billion yuan from 3.7 billion yuan last year, 36 per cent to 7.5 billion yuan next year, and 27 per cent to 9.5 billion yuan in 2008, the report said.

However, dividends will be about 25 per cent of this year's earnings, lagging behind 40 per cent at China Construction Bank Corp and Bank of Communications and 35 per cent at Bank of China. Merchants Bank's dividend ratio was expected to be 25 per cent next year and 30 per cent in 2008, the report said.

Merchants Bank, whose shares trade in Shanghai, won preliminary approval from the Hong Kong stock exchange last week for an initial share offering. It is marketing its shares to institutional investors.

CICC estimates the bank's shares to be priced at about 2.76 times book value, higher than the average of 2.15 times for six A-share lenders and 2.42 times for state-owned lenders Construction Bank, Bank of China and Bocom.

Merchants Bank would reduce the level of its non-performing loans to 2.23 per cent this year from 2.58 per cent last year, the report said. The ratio was expected to be further cut to 2.08 per cent next year and to 2.06 per cent in 2008.

UBS and JP Morgan are arranging the deal.