The strategic transformation of Societe Generale accelerated in the first three quarters of 2023, the expansion of negative assets has made steady progress, the asset quality has remained sound, and the operation is expected to accelerate repair. Maintain the company's "overweight" rating.
Matters: Societe Generale released its report for the third quarter of 2023. In the first three quarters of 2023, operating income and net profit in the first three quarters of 2023 were-5.59% and 9.53%, respectively, compared with the same period last year. The non-performing loan ratio was 1.07%, a month-on-month decline in 1bp.
Performance is still in the repair process. The company's net profit in the first three quarters of 2023 was 9.53% compared with the same period last year (year-on-year-4.92% in the first half of 2023). According to the split of profit factors: 1) the revenue decline continues: Societe Generale's operating income in the first three quarters is-5.59% year-on-year (year-on-year-4.15% in the first half of the year), mainly affected by the decline in the scale of old wealth management products and fluctuations in the capital market. 2) the ratio of cost to income increases slightly:
The company's cost-income ratio rose slightly from 1.11pcts to 27.87% (year-on-year + 1.81pcts in the first half of the year), and the company's cost investment increased slightly under the effort of business transformation, which remained stable as a whole. 3) phased strengthening of provisions:
Asset impairment loss in the first three quarters was + 2.83% compared with the same period last year (- 7.43% in the first half of the year). The company periodically strengthened all kinds of provisions and thickened the safety pad to help stabilize the operation.
The expansion of scale is steady and the performance of interest rate spreads is stable. The company's net interest income in the first three quarters was + 1.09% compared with the same period last year (- 0.79% in the first half of the year). 1) the growth rate of credit and investment is robust: in the third quarter, the company's total assets are + 0.33% (+ 0.65% in the first half of the year), loans and advances are + 1.75% (+ 1.59% in the first half of the year), and financial investment is + 3.23% (- 1.87% in the first half). Among them, corporate loans contributed core increments, while all investments grew evenly. 2) the performance of the interest margin was stable in the third quarter. The company disclosed a net interest margin of 1.92% in the first three quarters, a slight decrease in 1bp compared with the previous quarter, and a net interest margin of 1.92% in the third quarter, and only a slight decrease in 1bps in the third quarter.
The investment income stage goes down, and the middle income is still in the repair process. The company's non-interest income in the first three quarters was-17.03% (year-on-year-9.75% in the first half of the year). 1) Investment income declined slightly, and other non-interest income dominated by investment income in the first three quarters of the company totaled-2.62% compared with the same period last year (+ 12.67% in the first half of the year), mainly due to the slight decline in fair value change income under market fluctuations. 2) the collection of fees is still in the process of repair. The company's net income of fees and commissions in the first three quarters is-30.36% (year-on-year-30.25% in the first half of the year). The drag effect of the scale drop of the company's old financial products is still in the process of release, and the revenue in the next stage of financial management is expected to be stable.
Book quality and risk offset capacity remain robust. At the end of the third quarter of 2023, the company's non-performing loan ratio was 1.07%, a month-on-month decline in 0.01pct, while the loan ratio was slightly higher than at the end of last year. 0.04pct. In terms of provision, the company's asset impairment loss in the first three quarters was + 2.83% compared with the same period last year (- 7.43% in the first half of the year), and the company gradually increased various provisions; the provision coverage rate declined to 237.78% from the previous month, maintaining a reasonable and steady level.
Risk factors: macroeconomic growth has declined sharply, bank asset quality has deteriorated more than expected; regional economic prosperity has fluctuated sharply; corporate strategy has failed to advance as expected; regulatory and industry policies have exceeded expectations.
Investment advice: net interest increases again, interest margin stabilizes. The strategic transformation of Societe Generale accelerated in the first three quarters of 2023, the expansion of negative assets has made steady progress, the asset quality has remained sound, and the operation is expected to accelerate repair. Due to the impact of lower asset pricing in the industry, we adjusted the company's 2023 EPS 2024 2025 forecast to 3.85 4.10 shock 4.49 yuan (the original forecast 4.19 4.47). The current A share price corresponds to 0.46x PB in 2023. According to the calculation of the three-stage dividend discount model (DDM), the company is given a target valuation of 0.59 x PB in 2023, corresponding to the target price of 20 yuan (the original target price is 24 yuan), maintaining the "overweight" rating.