We use an Economic Value Added (EVA) model to determine our target price of HK$5.81 for ABC H-shares. EVA is commonly used to value banks, especially when rate liberalization has kicked off and ROE is likely to drop. Our assumptions include a sustainable ROE of 9% and long-term growth of 3%. We adopt a cost of equity of 11.2%, which suggests a fair FY26 P/B of 0.63x.

Key downside risks that could mean the shares fail to achieve our EVA-based target price include: 1) deposit cost hike; 2) loss of deposit market share due to interest rate liberalization; and 3) weaker economic growth in rural areas.