3Q23 performance is in line with our expectations
Guiyang Bank released its third-quarter results, showing that cumulative revenue in the first three quarters decreased by 5.2% compared with the same period last year, net profit in the first three quarters decreased by 2.9%, revenue in the third quarter decreased by 9.2% compared with the same period last year, and net profit decreased by 4.2% compared with the same period last year.
Trend of development
Asset growth has expanded steadily. At the end of 3Q23, the total assets, loans and deposits of Guiyang Bank increased by 4.9%, 16.1% and 4.7% compared with the same period last year, and increased by 0.1%, 1.4% and 1.7% compared with the same period last year. From a structural point of view, loan growth mainly comes from corporate loans, while retail loans remain relatively stable compared with the same period last year.
Spreads continue to fall from the previous month. We estimate that the quarterly net interest margin of 3Q23 Guiyang Bank is 2.25%, down 29bp from the same period last year and 5bp from the previous year. The fall in spreads dragged down 3Q23's net interest income by 5.7 per cent year-on-year. We estimate that the rate of return on 3Q23's interest-bearing assets is 4.91%, down 27bp from the same period last year, up 5bp from the previous year; interest-paying debt cost ratio is 2.66%, up 5bp from the same period last year, and 12bp is up from the previous year. Fixed deposits may be the main reason for the drag.
3Q23's non-interest income fell 34 per cent year-on-year. Guiyang Bank 3Q23 net fee income fell 61% compared with the same period last year.
Other non-interest income decreased by 29% compared with the same period last year, which we believe is mainly due to the decrease in revenue from the wealth management business and the decrease in profit and loss from fair value changes compared with the same period last year.
Pay attention to the upward trend of defect rate. The quarter-on-quarter non-performing rate of 3Q23 rose by 14bp to 1.62%. We estimate that the non-performing rate in a single quarter is 1.48%, which we believe is mainly due to the increase in non-performing loans exposed to real estate. The proportion of loans of concern decreased by 25bp to 3.06% in the quarter-on-quarter, and the provision coverage ratio decreased to 265% in the quarter-on-quarter, and credit costs continued to fall.
Profit forecast and valuation
As we expect the net interest margin to narrow further, the net profit of 2023e and 2024E will be reduced by 3.6% and 5.6% to 5.973 billion yuan and 5.976 billion yuan. The current share price corresponds to 0.3 times 2023E price-to-book ratio and 0.3 times 2024E price-book ratio. Keep the neutral rating and target price unchanged at 6.15 yuan, corresponding to 0.4 times 2023E price-to-book ratio and 0.3 times 2024E price-to-book ratio, which has 17.4% upside space compared with the current stock price.
Risk
The asset risk is lower than expected, and the regional credit demand is not as expected.