3Q23 performance is lower than we expected.
Bank of Beijing announced 3Q23 results: 1-3Q23 revenue fell 3.2% year-on-year, home net profit increased 4.5% year-on-year, 3Q23 single-quarter revenue decreased 6.4% year-on-year, and home net profit increased 3.6% year-on-year. The performance is slightly lower than we expected, mainly due to a large year-on-year decline in net fee income.
Trend of development
The scale expansion has maintained a relatively rapid growth rate. At the end of 3Q23, the total assets / loans / deposits of the Bank of Beijing increased by 15.3%, 13.5%, 10.6%, and 1.1%, 0.8%, respectively, compared with the same period last year. Centering on the national strategic plan, the overall development of the capital and the guidance of regulatory policies, the Bank of Beijing makes every effort to build a "B=IB+AIB" iron triangle matrix, using investment banking thinking and AI-driven. The loan focuses on scientific innovation, green, inclusive benefits, specialization and innovation, and the construction of the first line of "specialization and innovation" is accelerated.
Spreads rebounded slightly from the previous month. We estimate that the 3Q23 net interest margin rose by 7bp to 1.44% from the previous quarter, the return on interest-bearing assets rose by 5bp to 3.42% from the previous quarter, and the interest-paying debt cost ratio decreased by 2bp to 2.29% from the previous quarter. We expect the asset-liability structure adjustment to hedge against the downward interest rate pressure.
Retail loans at the end of 3Q23 increased by 12.1 per cent year-on-year, with consumer loans rising 8.3ppt to 26.7 per cent.
The new retail strategy system has been gradually improved. 3Q23's single-quarter net fee income fell 42.1% from the same period last year, which we believe is mainly due to industry pressure and the company's high base last year, while other non-interest income is basically the same as the same period last year. At the same time, we also pay more attention to the construction of the new retail strategy system of Bank of Beijing. 3Q23 Bank of Beijing has completed the adjustment of the organizational structure of the retail line, continuously promoting brands such as Xiaojingka, Jingcai Fanghua and Jingcai Wealth, and working hard on children's finance, pension finance and wealth management.
The quality of assets has improved slightly. The final defect rate of 3Q23 decreased by 1bp to 1.33% quarter-on-quarter. We estimate that the defect generation rate after write-off in a single quarter is 0.96%, down 38bp from the same period last year and 11bp from the previous quarter. Lower credit costs boosted net profit, while provision coverage fell slightly 2.4ppt to 215.2 per cent quarter-on-quarter.
Profit forecast and valuation
Due to the impact of the downside of LPR and loan repricing, we reduced the net profit of 2023E/2024E by 4% to 25.9 billion yuan / 27.2 billion yuan. The current share price corresponds to 0.38x/0.35x 2023E/2024E Pamp B. Maintain the outperform industry rating, but due to the downward shift of the valuation center of the industry, we cut our target price by 7.0% to 5.60 yuan, corresponding to 0.47x/0.44x 2023E/2024E Pmax B, which has 23.9% upside compared to the current stock price.
Risk
The construction of the new retail strategy system is not as effective as expected, and the improvement of asset quality is not as expected.