China Minsheng Banking Corp 1H23 revenue growth rate-3.6%, return to the mother net profit growth rate-3.5%, are lower than Q1, slightly under pressure. Since 2020, the non-performing disposal has accelerated obviously, with the total disposal of problem assets exceeding 300 billion yuan, and the risk preference for credit has declined. The non-performing loan ratio of 23Q2 is 1.57%, and the concerned loan ratio is 2.68%, both of which are significantly lower than at the beginning of the year, and asset quality shows signs of improvement. Maintain the overweight rating with a target price of 4.84-5.45 yuan per share.
Event: on the afternoon of August 30, China Minsheng Banking Corp disclosed the 1H23 performance: operating income 71.54 billion yuan, YoY-3.6%; return to the mother net profit 23.78 billion yuan, YoY-3.5%; weighted average ROE reached 7.9%.
By the end of June 2023, the assets were 7.64 trillion yuan and the non-performing loan ratio was 1.57%.
The growth rate of performance is slightly under pressure. Affected by industry factors such as narrowing interest rates, 1H23 revenue grew by-3.6 per cent, down from the first quarter; net profit from home grew by-3.5 per cent, down significantly from the first quarter and lower than the 2.6 per cent net profit growth of commercial banks in the same period. China Minsheng Banking Corp's 1H23 revenue growth rate is low, on the one hand, it is related to industry factors such as narrowing interest rate spreads, on the other hand, China Minsheng Banking Corp's revenue has continued to grow or declined since 2020, reflecting a significant decline in his risk appetite for asset investment.
The decline in spreads has narrowed and is expected to stabilise in the future. The 1H23 net interest margin was 1.48%, down 12BP from the previous year and narrowing from the previous year's 31BP spread. Since 2020, the risk appetite for asset investment has declined significantly, and the superimposed LPR has been downgraded. The rate of return on interest-bearing assets has dropped sharply, from 4.53% in 2020 to 3.85% of 1H23, especially the loan yield has dropped from 5.35% to 4.41% of 1H23. The yield on interest-bearing assets fell sharply, while the cost ratio of interest-bearing liabilities rose slightly from 2.41 per cent in 2020 to 2.44 per cent of 1H23, and the net interest margin fell sharply. The high cost rate of interest-bearing liabilities is mainly due to the fixed deposit and the lag of deposit interest rate reduction. We believe that the impact of the decline in asset risk appetite on interest spreads is basically reflected, with the gradual transmission of deposit interest rates, the subsequent spread is expected to stabilize.
The bad disposal is strong, and the asset quality shows signs of improvement. The disposal of non-performing loans increased significantly in 2018, with a total write-off and transfer of non-performing loans totaling 305.4 billion yuan in 2018-1H23, and more than 300 billion yuan in troubled assets since 2020. The non-performing loan ratio of 23Q2 is 1.57%, down 10bp from the beginning of the year; the concern loan ratio is 2.68%, down 22bp from the beginning of the year; and the overdue loan rate is 2.0%, which is basically the same as at the beginning of the year. The 23Q2 provision coverage rate is 147%, the loan ratio is 2.31%, and the provision level is relatively stable.
Maintain the overweight rating. China Minsheng Banking Corp has a good customer base, has greatly increased the intensity of bad disposal since 2020, and the business risk appetite has decreased significantly. With the accelerated disposal of historical undesirable baggage, business performance may improve in the future. Due to the reduction in stock mortgage interest rates and the reduction in LPR in 2023, there is pressure to narrow banking spreads in 2024, and we expect results to improve in 2025. Maintain the overweight rating and give the 23-year PB target valuation of 0.4-0.45 times, corresponding to the target price of 4.84-5.45 yuan per share.
Risk tips: the economic downturn more than expected affects asset quality; stock mortgage interest rates and LPR decline and so on.