UBS: Capital replenishment plan eliminates uncertainty. Industrial and Commercial Bank of China (01398) and Agricultural Bank of China (01288) profit and dividend increases can offset equity dilution.

UBS released a research report stating that China is injecting 360 billion RMB in capital into eight major state-owned financial institutions, including the Industrial and Commercial Bank of China (01398) and the Agricultural Bank of China (01288), which plan to raise no more than 100 billion and 160 billion respectively through additional issuance. The bank believes that this capital injection plan can eliminate uncertainties for state-owned banks and acts as a positive catalyst. The report indicates that in terms of equity dilution, the Industrial and Commercial Bank of China is less affected by direct dilution compared to the Agricultural Bank of China. Assuming an issuance price of 7.82 RMB per share for the Industrial and Commercial Bank of China, if net profit growth reaches 3.6% or above, it can fully offset the earnings per share dilution. As for the Agricultural Bank of China, calculated at 6.72 RMB per share, the anticipated dilution of earnings per share is significantly higher, around 6.8%. The report continues to state that the net profits of the Industrial and Commercial Bank of China and the Agricultural Bank of China in the first half of the year grew by 3.3% and 5.4% year-on-year, respectively, with both banks increasing their payout ratios by 1 percentage point to 31%. The expected profit growth and increased dividends are anticipated to offset the direct dilution resulting from the capital injection.