Comparing China Merchants Bank (OTCMKTS:CIHKY) and HSBC (NYSE:HSBC)

HSBC (NYSE:HSBC) and China Merchants Bank (OTCMKTS:CIHKY) are both large-cap finance companies, but which is the better stock? We will contrast the two businesses based on the strength of their valuation, profitability, dividends, analyst recommendations, institutional ownership, earnings and risk.

Dividends

HSBC pays an annual dividend of $1.98 per share and has a dividend yield of 2.5%. China Merchants Bank pays an annual dividend of $1.18 per share and has a dividend yield of 3.6%. HSBC pays out 41.7% of its earnings in the form of a dividend. China Merchants Bank pays out 29.9% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. China Merchants Bank is clearly the better dividend stock, given its higher yield and lower payout ratio.

Analyst Recommendations

This is a breakdown of recent ratings and target prices for HSBC and China Merchants Bank, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
HSBC	0	5	6	2	2.77
China Merchants Bank	0	0	0	0	0.00

HSBC currently has a consensus target price of $63.00, indicating a potential downside of 21.42%. Given HSBC’s stronger consensus rating and higher probable upside, analysts clearly believe HSBC is more favorable than China Merchants Bank.

Profitability

This table compares HSBC and China Merchants Bank’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
HSBC	12.85%	12.78%	0.81%
China Merchants Bank	32.06%	12.04%	1.19%

Valuation and Earnings

This table compares HSBC and China Merchants Bank”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
HSBC	$141.75 billion	1.94	$23.98 billion	$4.75	16.88
China Merchants Bank	$69.20 billion	2.36	$20.64 billion	$3.94	8.23

HSBC has higher revenue and earnings than China Merchants Bank. China Merchants Bank is trading at a lower price-to-earnings ratio than HSBC, indicating that it is currently the more affordable of the two stocks.

Insider & Institutional Ownership

1.5% of HSBC shares are owned by institutional investors. 0.0% of HSBC shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.

Volatility & Risk

HSBC has a beta of 0.52, indicating that its share price is 48% less volatile than the S&P 500. Comparatively, China Merchants Bank has a beta of 0.24, indicating that its share price is 76% less volatile than the S&P 500.

Summary

HSBC beats China Merchants Bank on 12 of the 17 factors compared between the two stocks.

About HSBC

HSBC Holdings plc provides banking and financial services worldwide. The company operates through Wealth and Personal Banking, Commercial Banking, and Global Banking and Markets segments. The Wealth and Personal Banking segment offers retail banking and wealth products, including current and savings accounts, mortgages and personal loans, credit and debit cards, and local and international payment services; and wealth management services comprising insurance and investment products, global asset management services, investment management, and private wealth solutions. This segment serves personal banking and high net worth individuals. The Commercial Banking segment provides credit and lending, treasury management, payment, cash management, commercial insurance, and investment services; commercial cards; international trade and receivables finance services; foreign exchange products; capital raising services on debt and equity markets; and advisory services. It serves small and medium sized enterprises, mid-market enterprises, and corporates. The Global Banking and Markets segment offers financing, advisory, and transaction services; and credit, rates, foreign exchange, equities, money markets, and securities services; and engages in principal investment activities. It serves government, corporate and institutional clients, and private investors. HSBC Holdings plc was founded in 1865 and is headquartered in London, the United Kingdom.

About China Merchants Bank

China Merchants Bank Co., Ltd., together with its subsidiaries, provides various banking products and services. It operates through Wholesale Finance Business, Retail Finance Business, and Other Business segments. The company offers current, demand, time, call, savings, notice, and renminbi accounts. Its loan products include personal commercial real estate, consumption, housing, and car loans; loans to finance for studying abroad; micro-business loans; mortgage loans for equipment; joint guarantee, special guarantee, and housing mortgage loan; bank acceptance, discount, liquid capital, and fixed asset loans; and loans for vessels. The company also offers credit cards; insurance products; open-ended funds; discount and guarantees for commercial bills, redemption of commercial bills, and guaranteed discount for commercial acceptance bills; and financial consultation, debt financing underwriting, merger and acquisition financing, and equity financing and enterprise listing services. In addition, it provides forfeiting and risk participation, escrow, cross-border RMB clearing, and interbank services; and risk and financial management, cross-border RMB and oversea financing, international factoring and settlement, and trade finance services. Further, the company offers financial leasing and guarantee, investment and wealth management, forex option and gold trading, forex express trading, international, offshore and private banking, custody, pension, and electronic banking services. The company also operates in Hong Kong, New York, London, Singapore, Luxembourg, Sydney, and Taipei. China Merchants Bank Co., Ltd. was founded in 1987 and is headquartered in Shenzhen, China.