Key points of investment
Bank of Shanghai's 23Q1 interest spreads improved month-on-month. Bad performance remained stable, and revenue needs to pick up.
Performance Overview
23Q1 Bank of Shanghai's revenue was -7.1% year on year, down 1.6 pc from 22A; Guimu's net profit was +3.2% year on year, up 2.2 pc from 22A; ROE (annualized) -0.6pc to 11.9% year on year. The non-performing rate of the Bank of Shanghai at the end of 23Q1 was equal to 1.25% compared to the end of 22Q4, and the provision coverage rate was 5pc to 287% at the end of 22Q4.
Revenue growth has bottomed out
① 23Q1 Bank of Shanghai's revenue was -7.1% year-on-year, and the growth rate fell 1.6pc from 22A, mainly interest income growth continued to slow, 23Q1 interest income was -11.7% yoy, and the growth rate was 5.7pc lower than 22A. Affected by both the slowdown in scale growth and the narrowing of interest spreads, earnings assets at the end of 23Q1 were +5.4% year-on-year, down 1.2pc from the end of 2022, and the 23Q1 interest spread (early end of the period) fell 28 bps year-on-year. ② 23Q1 Bank of Shanghai's net profit was +3.2% year on year, and the growth rate increased 2.2 pc from 22A. The main reason was that the impairment contribution increased. 23Q1 asset impairment loss was -34.9% yoy, down 16.5 pc from 22A. Looking ahead, considering the high and low interest spread base in 2022, the year-on-year decline in interest spreads is expected to improve, and the revenue growth rate of the Bank of Shanghai is expected to bottom out and pick up.
Interest spreads improved month-on-month
The 23Q1 interest spread (measured at the beginning and end of the period) was +4bp to 1.40% compared to the 22Q4 single-quarter interest spread (the beginning and end of the period), mainly due to improved asset structure, which led to a recovery in return on assets. ① On the asset side, the asset return on 23Q1 rose 8 bps to 3.64% from 22Q4, mainly due to improved asset structure. 23Q1 loans, bonds, and peers were +3%, +4%, and -4% month-on-month respectively. The growth rate was 0.7 pc faster, 1.7 pc faster, and 6.7 pc slower than interest-bearing assets. ② On the debt side, the 23Q1 debt cost ratio increased by 3 bps to 2.19% compared to 22Q4. Judging that it is related to debt restructuring, deposits (22A interest rate 2.12%) and interbank liabilities (22A interest rate 1.99%) were +4.8% and 0.2% respectively compared to the beginning of the year, 1.7 pc faster and 3 pc slower than interest-bearing debt. Furthermore, it was noted that the company disclosed that the personal deposit interest rate for 23Q1 was 2.34%, down 11 bps from the end of '22. Looking ahead, the Bank of Shanghai is expected to maintain a stable net interest spread by increasing loan investment and reducing pressure on high-cost deposits.
Bad remains stable
① Overall, since the end of 2021, the non-performing rate of the Bank of Shanghai has stabilized at 1.25%. Judging from forward-looking indicators, asset quality still fluctuates to a certain extent. The interest rate of Bank of Shanghai in 23Q1 increased by 14 bps to 1.77% compared to the end of 22Q4. Judging that the net generation rate of real bad TTMs in 2022 increased 21 bps to 1.07% from 22H1. At present, the impact of the epidemic on production and life has gradually subsided, and the business environment of enterprises has improved. It is expected that the negative pressure generated by Q2 will decline.
② Looking at the sector, at the end of 2022, the Bank of Shanghai's non-performing ratio for public loans was 1.56%, which was flat at the end of 22H1; the retail non-performing rate was 0.83%, down 14bp to 0.83% from the end of 22H1. The main thing was that the non-performing ratio of personal consumer loans and credit card loans improved, but the non-performing rates of personal operating loans and personal mortgage loans still rose slightly. The two increased 15bps and 2bp to 0.57% and 0.16% respectively from the end of 22H1.
Profit forecasting and valuation
Bank of Shanghai's net profit is expected to increase 4.5%/5.3%/6.3% year-on-year in 2023-2025, corresponding to BPS15.64/15.73/15.73/15.83 yuan of shares. The current price corresponds to 0.40/0.40/0.40 times the 2023-2025 PB valuation. The target price is 7.82 yuan/share, corresponding to 0.50 times PB in 23 years, with 25% of current price space.
Risk warning: The macroeconomic economy has stalled, and there has been a sharp outbreak of malaise.