Incident: On October 26, CCB released its quarterly report for '23. 23Q1-3 achieved cumulative revenue of 588.4 billion yuan, YoY -1.3%; net profit of 255.4 billion yuan, YoY +3.1%; non-performing rate of 1.37%, provision coverage rate of 243%.
Other non-interest income has shown impressive performance, and net profit has been growing steadily. The year-on-year growth rates of 23Q1-3's cumulative revenue and net profit were -0.7 pct and -0.3 pct, respectively, compared to 23H1. Looking at the revenue segment, 23Q1-3 net interest income was -3.1% compared to the same period last year. The main pressure may stem from the narrowing of net interest spreads. In terms of non-interest income, the 23Q1-3 medium income was stable overall, and the growth rate was basically the same as that of 23H1; the growth rate of other non-interest income was higher, with 23Q1-3 being +40% year on year, mainly driven by the increase in investment income and other business revenue growth. The cumulative credit impairment loss of 23Q1-3 was -12.1% year-on-year, and profit margins were freed up, and the net profit of 23Q1-3 was +3.1% year-on-year.
Credit expansion is steady, and entities are actively served. The total assets and total loans of 23Q1-3 were +10.3% and +12.8% year-on-year, with year-on-year growth rates of -3.2 pct and -0.6 pct compared to 23H1, respectively. Structurally, the company actively serves entities, and credit growth in key areas is high. The balance of 23Q1-3 agricultural loans and green loans increased by 25.7% and 32.9% respectively compared to the end of the previous year.
The net interest spread narrowed slightly, and the decline stabilized. The 23Q1-3 net interest spread was slightly reduced by 4BP to 1.75% from 23H1. Although interest spreads are still on a downward trend, the decline has gradually narrowed and stabilized. On the asset side, economic recovery is expected to promote a steady increase in the scale of credit, or mitigate the negative effects of declining loan pricing on asset returns to a certain extent. On the debt side, although the trend of deposit regularization continues, a reduction in deposit listing interest rates is expected to reduce the pressure on deposit costs.
The non-performing rate is running at a low level, and asset quality is improving steadily. The 23Q3 bad rate was at the same level as 23H1 at 1.37%, maintaining a steady downward trend. Risk compensation capacity is sufficient. The provision coverage rate for 23Q3 is 243%, and the loan ratio is slightly reduced by 1BP to 3.33% compared to 23H1.
Investment advice: Actively serve entities, stable asset quality
CCB 23Q1-3 sees steady growth in net profit. Although the increase in non-interest income is no match for the decline in net interest income, along with the recovery of demand, a steady increase in credit investment and a steady contraction of net interest spreads, revenue is expected to improve; the non-performing rate remains stable and the ability to cover risk is solid; demonstrating the responsibility of major banks and always adhering to high-quality service entities, the three strategies of “housing leasing, financial inclusion, and financial technology” are expected to steadily advance to build a service matrix. The 23-25 EPS is expected to be 1.34, 1.41, and 1.51 yuan respectively. The closing price on October 27, 2023 corresponds to 0.5 times the 23 year PB, maintaining the “recommended” rating.
Risk warning: Macroeconomic growth declines; asset quality deteriorates; the decline in industry net interest spreads exceeds expectations.