Key Takeaway

Bank of Shanghai(BOSC) has a strong state-owned background and leading foreign-invested heritage. The new management team is well-structured, with extensive industry experience. The company is deeply rooted in Shanghai, actively integrating into the development of Shanghai’s "Five Centers" initiative, and building distinctive growth poles in technology finance, green finance, and elderly care finance. Under a steady business strategy, performance continues to grow steadily, and if the BOSC Convertible Bond are successfully converted into shares, growth potential will be further expanded. The company’s current dividend yield ranks among the top in the industry. Its valuation is suppressed by factors such as insufficient expectations for economic recovery and pessimistic market sentiment. The company currently features both low valuation and high dividend yield.

Thesis

BOSC has a strong state-owned background and leading foreign-invested heritage. The new management team is well-structured, with extensive industry experience. On the shareholder side, the company has a strong state-owned background and leading international qualities. On the management side, the newly appointed leadership has deep experience in Shanghai’s local financial sector and extensive hands-on expertise. Many members of the executive team have professional backgrounds in large state-owned banks or regulatory agencies, forming a well-structured and stable core framework. This has laid an organizational foundation for the company’s high-quality development during the “15th Five- Year Plan” period.

Strong business presence in Shanghai locally, with deep integration into the building of Shanghai’s "Five Centers" initiative and continuous commitment to the five major financial priorities. BOSC has deeply integrated into the building of Shanghai’s “Five Centers” initiative and the national strategy of Yangtze River Delta integration, building a three-dimensional business structure with the head office as the hub, radiating toward key growth areas nationwide. At the business level, the company demonstrates strong commitment to the five major financial initiatives of China, creating differentiated growth drivers in technology finance, green finance, and pension finance. In addition, leveraging the background of foreign shareholders and the advantages of Shanghai ’s location, the company’s cross-border financial services also demonstrate strong competitiveness.

From a fundamentals perspective, under BOSC's steady growth business strategy, its performance has continued to grow steadily. In terms of scale, the asset size in 3Q25 was 3.3 trillion yuan. Although the growth rate slowed due to the impact of the macro environment, it still maintained a steady balance sheet expansion trend. Net interest margin performance: The 9M25 net interest margin was 1.17%. Benefiting from the continued optimization of liability costs and structural improvement, the margin has shown trends of stabilization and rebound. In terms of asset quality, the nonperforming loan ratio remained flat quarter-on-quarter at 1.18%, the provision coverage ratio increased to 255%, and the capacity to offset risks was further strengthened. The proportion of non-interest income is 38.9%. Leveraging the advantage of diversified licenses, non-interest income growth shows strong resilience. If the BOSC Convertible Bond is successfully converted into shares, static calculations indicate it could boost the core Tier 1 capital adequacy ratio by 0.88 percentage points to 11.4%, further expanding the company’s capacity for balance sheet growth.

Revenue growth is expected to be 3.8%, 5.2%, and 5.1% in 2025, 2026, and 2027, respectively, while profit growth is expected to be 2.9%, 5.9%, and 5.8%. The current stock price corresponds to a 2026E dividend yield of 5.6%. After accounting for dilution, it is still 5.0%, ranking among the top in the industry, with an outstanding dividend profile. Based on overall fundamentals performance, we assign BOSC a Buy rating, with a target valuation of about 0.6x 2026 PB, corresponding to a target price of RMB12.

Risks

(1) The pace of economic recovery falls short of expectations, weakening corporate debt repayment capacity. Some companies with relatively poor creditworthiness may face default risks, which could trigger banks' non-performing loan default risks and a significant decline in asset quality.

(2) In key areas such as real estate and local government financing platform debt, risks have become highly concentrated, posing a significant impact on the quality of banks’ assets and greatly undermining their profitability.

(3) The easing credit policy is weaker than expected, and the rapid economic growth in the regions where the company operates is unsustainable, which in turn has a significant adverse impact on the company’s credit issuance.

(4) The results of retail transformation fell short of expectations, and large-scale fluctuations in the equity market affected the company's wealth management business.