Asset quality improves, digital transformation continues
Net profit, revenue, and PPOP for January-June were -23.32%, -7.5%, and -10.4%, compared to January-March -5.0 pct, -3.7 pct, and -5.1 pct. Annualized ROE and ROA were -2.80 pct and -0.16 pct, respectively, year-on-year.
The slowdown in scale expansion, the narrowing of interest spreads and the decline in non-interest growth are the main hindrances to performance. Given that interest spreads are under pressure, we forecast an EPS of 1.46/1.50/1.55 yuan for 2023-25, and a BVPS forecast value of 21.08 yuan for 23, corresponding to 0.33 times PB. Comparable to the company Wind in '23, unanimously predicted 0.43 times the average PB value. The company's digital transformation enabled development, and asset quality continued to improve, but considering that short-term interest spread pressure still exists, we gave the 23-year target PB 0.40 times, the target price was 8.43 yuan, and maintained the “increase in holdings” rating.
Scale expansion is slowing down, and interest spreads continue to narrow
At the end of June, the company's total assets, loans, and deposits were +5.0%, +2.0%, and +6.8%, compared to -0.2 pct, -0.5 pct, and -1.3 pct at the end of March. New loans were mainly to the public sector in the first half of '23. The size of notes declined somewhat. The deposit availability rate at the end of June was +1.0 pct to 44.1% compared to the end of March, and the deposit and loan structures were steadily optimized. The company actively served the national strategy. At the end of June, the company's manufacturing medium- and long-term loans, green credit, and science and technology innovation loan balances were +43.52%, +32.66%, and +43.06% year-on-year. The net interest spread from January to June was 1.56%, compared to 22-21 bps, mainly dragged down by falling loan yields and rising deposit costs; among them, the yield on interest-bearing assets and the cost ratio of interest-bearing debt were 3.88% and 2.35%, respectively, compared to 22-8 bps and +11 bps; loan yield and deposit cost ratios were 4.38% and 2.19%, respectively, compared to 22-17 bps and +9 bps.
Digitalization empowers users, outstanding agency business
January-June mid-year revenue was -8.63%, compared to January-June +1.9 pct. The agency business performed well. In January-June, it achieved agency revenue of 3,084 billion yuan, a year-on-year increase of 71.81%. We believe it mainly contributed to consignment insurance revenue. Continuously improving the online retail channel service experience, personal mobile banking transaction amount was +10.81% year-on-year in the first half of the year, and MAU at the end of June increased by 3.98% compared to the beginning of the year. Revenue from the card business declined. In January-June, bank card processing fees and credit card business revenue were -4.0% and -4.6%, respectively; the credit card loan balance was 408.6 billion yuan, -5.8% year-on-year. The company strives to build a digital platform for the industry and expand the API to “thousands of households”
Link. In the first half of the year, 2.04 million active users were added, and 418 API projects were added.
Loan provisions have increased, and credit costs have declined
The non-performing loan ratio and provision coverage rate at the end of June were 1.49% and 170% respectively, compared to -3 bps and +10 pct at the end of March.
The share of interest loans increased by 1 bps to 2.16% compared to the end of March. The non-performing loan ratio for public loans fell by 22 bps to 1.69% compared to the end of 2022, mainly due to the continued elimination of risks in the real estate, transportation and warehousing industries, and the balance of corresponding non-performing loans and the non-performing rate fell by both at the end of June. Loans/non-performing loans overdue for more than 90 days were 91%, compared to +4 pct at the end of 2022. The annualized credit cost in 23Q2 was 1.81%, -11 bps over the previous year, but the annualized bad generation rate was +13 bps to 1.29% month-on-month. The capital adequacy ratio and core Tier 1 capital adequacy ratio at the end of June were 13.57% and 9.16%, respectively, compared to +0.16 pct and +0.07 pct at the end of March.
Risk warning: Economic recovery fell short of expectations, and the deterioration in asset quality exceeded expectations.