Here are two possible reasons behind CITIC Bank's recent share price rally

Share price jumped a whopping 10%.

According to Nomura, CITIC Bank’s share price rose by 10% in the past three trading days. Its A- share was up 30% during the same period (vs Hang Seng Index up 3% and SHCOMP up 1%). The bank released an announcement last night that it is not aware of any reason for the price movement.

Here's more:

We attribute the recent rally to: 1) Local media reports (Cajing, 13 Feb) which quoted an internal source saying that CITIC Bank’s FY13 NPAT may reach CNY39.2bn, up 26% y-y and 12% ahead of market consensus; 2) Xinhua reported (13 February) that Alibaba (unlisted) may acquire a stake in CITIC Bank and expand strategic cooperation with the bank.

We still expect CITIC Bank’s full-year earnings to beat consensus estimates on the back of normalised credit costs and strong recovery in net fee income. In November 2013, we upgraded our rating on the bank to Buy in our Anchor report, as we believe its earnings growth will regain momentum.

Further, we think the A-share rose much more because Alibaba would likely buy CITIC Bank’s A-share if it were to acquire a stake in the bank. Further cooperation with Alibaba/Tencent to be potential catalyst CITIC Bank signed a strategic cooperation agreement with Alibaba back in April 2011 and has become the only custodian bank for YuEBao since June 2013.

In addition, as we mentioned in our November 2013 Anchor report, CITIC Bank has an exclusive cooperation agreement with Tencent (700 HK) and has developed online micro-loan business by sharing a customer base.

In our view, CITIC Bank has been proactive in developing its online business. We do not rule out the possibility that it may have further cooperation with Alibaba or Tencent and see any progress as positive catalyst to CITIC Bank. We reiterate our Buy rating on the stock.

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