Why can Agricultural Bank of China maintain a 1x PB ratio?

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1. Behind the Surge in Agricultural Bank’s Stock Price, Pay Attention to the Pressure of Periodic Correction

From 2025/9/25 to 10/22, Agricultural Bank experienced “14 consecutive rally days”, repeatedly hitting historical highs, and stood above 1x PB again after seven and a half years. However, on October 23, after reaching a new high during the session, the stock price plummeted and reversed downward.

Reviewing the recent performance of Agricultural Bank, the short-term sharp increase in stock price may be driven by market sentiment; attention should be paid to the risk of periodic correction.

Specifically:

1. Agricultural Bank’s increase in October reached 21.3%, the highest single-month gain since 2015, which is rare among the big state-owned banks. Reviewing single-month increases of other state-owned major banks since 2015, only ICBC, CCB, and BOCOM have each had a single-month rise above 20%, with ICBC and CCB in January 2018, BOCOM in June 2015. Therefore, as of 10/22, after hitting a historical high in single-month increase, Agricultural Bank’s stock faces some adjustment pressure.

2. Agricultural Bank’s valuation has reached a periodic high, and its relative valuation safety margin has weakened. On October 17, Agricultural Bank took the lead in breaking above 1x PB, ending the long-term ‘below-book’ pattern among state-owned banks. As of 10/22, Agricultural Bank's PB stands at 1.06x, but ICBC, CCB, BOC, BOCOM, and Postal Savings are at 0.74x/0.73x/0.67x/0.56x/0.70x respectively. The weakening of valuation advantage may reduce its appeal to some funds pursuing high safety margins.

2. Why Did Agricultural Bank Experience a Big Correction in September? Does This Mean Its Rise Has "Bubbles"?

Between 2025/9/5 and 9/22, Agricultural Bank’s stock price saw a significant pullback, falling 11.1% cumulatively, much higher than its peers among state-owned major banks during the same period.

We believe this mainly stems from July and August, during which the banking sector as a whole corrected, while Agricultural Bank still significantly outperformed its peers. After market style rotation, profit-taking willingness from accumulated winners was stronger, thus leading to concentrated correction pressure. Data shows,

From 2025/7/11 to 9/1, the banking sector overall fell 7.0%, while Agricultural Bank rose sharply by 11.6%.

Therefore, if Agricultural Bank stock price experiences another correction in the future, it is likely mainly to be impacted by two factors: first, shocks from market style rotation. Bank stocks tend to be defensive; if market risk appetite picks up in the future, a shift in funds may lead to repeated fluctuations in bank stocks. Second, the intrinsic need for technical adjustment. Agricultural Bank’s recent sharp rise means some profit-takers may choose to cash in near key barriers such as 1x PB, leading to a pullback in the stock price.

However, we believe a correction does not mean fundamental problems for Agricultural Bank, nor does it mean this year’s strong performance is a “rootless” gain divorced from fundamentals. The appearance of periodic corrections as Agricultural Bank stands firm at 1x PB is normal; it is unlikely to change the long-term trend of rising valuation centre and reversion to intrinsic value.

3. From a Medium to Long-Term Perspective, State-Owned Major Banks Returning Above 1x PB is the Trend, and Agricultural Bank is Expected to Take the Lead.

First, as the competitive landscape of the banking industry is reshaped, the “ballast stone” status of state-owned major banks becomes more prominent, and their competitive advantage stands out. We believe that the current “Matthew Effect” of “the strong get stronger” in the banking sector will be more significant. Whether it’s regulatory or market resources, they will likely continue to concentrate toward leading banks. Against this backdrop, as the top performer in the ‘penetration’ strategy, Agricultural Bank, with proactive positioning and deep cultivation, already enjoys competitive advantages stronger than its peers.

Second, strong fundamentals plus supportive capital injection bolster Agricultural Bank’s stable ROE. On the one hand, although Agricultural Bank now faces the same industry-wide NIM compression pressure, its core advantage in net interest margin has not changed – that is, the high customer stickiness and low liability cost from deep cultivation of county-area clients. On the other hand, fiscal capital injection will strengthen Agricultural Bank's capital strength and provide fuel for its “village reform support”, further empowering county business expansion.

Third, this year Agricultural Bank has achieved notable feats in the capital market, possibly driving stronger performance growth and market value management needs.

Investment Advice: Remain bullish on Agricultural Bank standing firm at 1x PB. In the short term, the banking sector historically performs well in Q4 and Q1. A review of quarterly performance from 2020–2024 shows Q4 accounts for 37.5% of quarters with both absolute and relative returns; Agricultural Bank’s performance is expected to benefit from this. In the medium and long term, as long as the backdrop of A-share market structure reshaping and the core logic of banking industry competitive reshaping and Agricultural Bank’s competitive edge remains unchanged, we can still have confidence in Agricultural Bank standing firm at 1x PB.

Risk Warning: Accelerated NIM downtrend, asset quality deterioration, stock price surging then falling back.

1. Behind Agricultural Bank’s Stock Surge, Attention Needed on Periodic Correction Pressure

From 2025/9/25 to 10/22, Agricultural Bank saw “14 consecutive rally days” and repeatedly hit historical highs, and once again stood above 1x PB after seven and a half years. However, on October 23, after another new high intraday, the stock price plummeted and reversed downward, dropping 1.24% in a single day.

Looking back at recent performance, Agricultural Bank’s short-term price surge may be driven by market sentiment; attention should be paid to periodic correction risk.

Specifically:

1. As of 10/22, Agricultural Bank’s October gain reached 21.3%, the single highest monthly increase since 2015, which is rare even among state-owned big banks. Reviewing monthly increases of major state-owned banks since 2015, only ICBC, CCB, and BOCOM each saw a single monthly gain above 20%. ICBC and CCB did so in January 2018; BOCOM in June 2015. Therefore, as of 10/22, with a record-high monthly gain, Agricultural Bank’s stock price faces certain adjustment pressure.

2. Agricultural Bank’s valuation has reached a periodic high, with its relative valuation safety margin advantage weakened. On October 17, Agricultural Bank took the lead in crossing the 1x PB mark, ending the long-lasting below-book situation among state-owned banks. As of 10/22, Agricultural Bank’s PB reached 1.06x, while ICBC, CCB, BOC, BOCOM, and Postal Savings are respectively 0.74x/0.73x/0.67x/0.56x/0.70x; the valuation advantage’s weakening may lessen its attractiveness to some funds seeking high safety margins.

2. Why Did Agricultural Bank Experience a Significant Correction in September? Does That Mean Its Rally Is “Bubbly”?

Between 2025/9/5 and 9/22, Agricultural Bank’s stock price experienced a notable pullback, dropping 11.1% cumulatively, much more than other state-owned banks during the same period.

We believe that this was mainly because in July and August, when the banking sector overall corrected, Agricultural Bank still led peers markedly; when market style shifted, accumulated profit-holders had a stronger intention to close positions, causing concentrated correction pressure. Data shows, from 2025/7/11 to 9/1, the banking sector overall fell 7.0%, while Agricultural Bank surged by 11.6%.

Thus, looking ahead, if Agricultural Bank’s stock corrects further, it may mainly be influenced by the following two points:

First, shocks from market style rotation. Bank stocks tend to be defensive. If policies such as “counter-involution” and new policy-based financial tools have significant effect, as market risk appetite picks up, funds may periodically shift from high-dividend sectors to

growth sectors with stronger “profit effect,” leading to repeated fluctuations in bank stocks.

Second, the intrinsic need for technical adjustment. Agricultural Bank’s short-term surge has led to accumulation of many profit holders, and some funds may choose to cash out near key levels such as 1x PB. This technical sell pressure may trigger a price pullback after a surge.

Nonetheless, we believe a correction doesn’t mean fundamental problems at Agricultural Bank, nor does it mean this year’s strong rally is “rootless” and divorced from fundamentals. As Agricultural Bank stands firm above 1x PB, periodic corrections are normal, but this is unlikely to change the long-term trend of a higher valuation centre and return to intrinsic value.

3. Where Does the Confidence in “Standing Firm at 1x PB” Come From?

We believe, in the medium and long term, state-owned banks returning above 1x PB is an inevitable trend, and Agricultural Bank is likely to be the leader. Reasons are as follows:

First, as the competitive landscape in banking is reshaped, the “ballast stone” role of major state-owned banks will be more highlighted, and their competitive edge more distinct.

On the one hand, central authorities have a clear, highly valued, and fully supportive positioning for major state-owned banks.

2023. At the Central Financial Work Conference in 2023, it was explicitly proposed to “support large state-owned financial institutions in improving and strengthening themselves, to be the main force in serving the real economy and the ballast stone to maintain financial stability.”
2024. At the “924” press conference held by the State Council Information Office, the National Financial Regulatory Administration stated clearly, “The state plans to increase core tier-one capital for six large commercial banks, to be implemented according to the principle of ‘overall planning, phased and batch approach, one policy per bank’.”

This means the central government not only expresses verbal support, but will also fortify the “ballast stone” role of large state-owned banks with actual resources.

On the other hand, the reshaping of banking’s competitive landscape is accelerating, making state banks’ advantage more prominent.

In recent years, retail loan business faces difficulty, corporate business in large cities is fiercely competitive, and with scarce quality assets, county-level credit demand has “arisen suddenly”, becoming a “must-fight area.”

Thus, “moving downward” is now a consensus among state-owned banks. Due to lower funding costs, high brand trust, and a rich product system, state-owned banks have significant advantages in peer competition. Data show: state-owned banks’ loan market share increased from 44.1% at the end of 2020 to 46.8% by mid-2025.

In contrast, some joint-stock banks are dragged down by risk accumulation caused by rough expansion and insufficient capital replenishment, making asset expansion difficult. City and rural commercial banks face severe survival pressure across “quantity, price, and risk.”

Therefore, we believe the “Matthew Effect” in bank competition will grow, with both regulatory and market resources likely to keep concentrating toward leading banks.

Against this backdrop, Agricultural Bank, as a leader in the penetration strategy, is now enjoying stronger advantages than peers, backed by forward-looking planning and long-term efforts.

Second, strong fundamentals plus capital injection support sustain Agricultural Bank’s ROE.

On the one hand, with effective implementation of the county finance strategy, Agricultural Bank’s fundamental advantages and features are notable.

In our report “The Story of Agricultural Bank: Equities” (2025.9.16), we summarized Agricultural Bank’s business formula as “Three Goods Formula + Four Highlights.” The “four highlights” are: greater loan expansion potential, stronger NIM resilience, stricter NPL recognition with lower NPL ratio, and thicker provision buffer, which together build Agricultural Bank’s sound fundamental base. Although the banking sector still faces NIM compression now, Agricultural Bank is no exception—the H1 2025 NIM was 1.32%. But we believe Agricultural Bank’s core NIM advantage remains: deep cultivation of county customers brings high stickiness and low funding cost. As county business continues to strengthen, this advantage is expected to become more solid, supporting a stabilization in NIM at low levels.

On the other hand, fiscal capital injection will strengthen Agricultural Bank’s capital and accelerate empowerment for county-level business expansion.

This year, BOC, CCB, BOCOM, and Postal Savings have together received 500 billion yuan in central fiscal capital injection. According to the regulator’s guidance of “staggered batches,” we expect Agricultural Bank and ICBC to proceed after next year's increase in the national debt quota. As of mid-2025, Agricultural Bank’s core tier-one capital adequacy ratio is 11.11%. If fiscal injection comes next year, it will be further strengthened.

Since the second half of this year, Agricultural Bank has accelerated “village reform support,” merging and acquiring 192 Jilin rural credit cooperative branches and sub-branches in just September and October. We believe due to Agricultural Bank’s strong base, it can absorb these institutions with little added operational pressure, and this will accelerate penetration and expansion of its county franchise.

Thus, if next year’s fiscal injection is realized, it will provide “fuel” for “village reform support” and empower county-level business development for Agricultural Bank.

Third, this year Agricultural Bank achieved many notable feats in the capital market, which likely implies strong performance growth and market value management objectives. In recent years, the enterprising management team has led to visible results in county strategy and operational advantages. Combined with many stock market feats this year, we believe management has stronger motivation to grow business and pursue profit.

To sum up, the changing competitive landscape in the banking industry will also reshape stock market investment in bank stocks. With its business formula, Agricultural Bank is expected to lead state banks in returning above 1x PB.

4.Investment Advice

Remain bullish on Agricultural Bank standing firm at 1x PB. In the short term, the banking sector has a higher win rate in Q4 and Q1. A review of 2020–2024 shows that Q4 accounts for 37.5% of quarters with both absolute and relative returns; Agricultural Bank’s performance is also expected to benefit. In the medium and long term, provided A-share market restructuring and the core logic of banking competition change and Agricultural Bank’s edge persists, we can maintain confidence in its 1x PB level.

5.Risk Warning

1. NIM falling faster: If the central bank cuts rates sharply and the trend of term deposits strengthens, pressure on both lending and deposit ends would be obvious.
2. Asset quality deteriorates: If economic recovery falls short, continued pressure on the real sector’s repayment ability will raise asset quality risks.
3. Stock price surges then falls: With the company’s 1-month rise near 20%, there might be profit-taking and a risk of price pullback.

Author: Liu Jie et al., TF Securities. Original article title: “Why Can Agricultural Bank Stand Firm at 1x PB?”

Risk Warning and DisclaimerThe market bears risks, and investment must be approached prudently. This article does not constitute personal investment advice, nor does it take into account any individual user's specific investment objectives, financial situation, or requirements. Users should consider whether any opinions, viewpoints, or conclusions in this article fit their specific circumstances. You are responsible for your own investment decisions based on this article. ```