Events:
On October 30, Zhangjiagang Bank released its three-quarter report for 2023, with revenue of 3.53 billion in the first three quarters, a year-on-year growth rate of-3.8%, and a net profit of 1.4 billion, up 10.2% from a year earlier. The weighted average return on equity (ROAE) was 12.2%, an increase in 0.2pct compared with the same period last year.
Comments:
The growth rate of revenue and profit has slowed down. In the first three quarters, Zhangjiagang's revenue, pre-provision profit and net profit from home increased by-3.8%,-10.7% and 10.2% respectively, down 5.3,3.9 and 3.4pct respectively compared with the first half of the year.
Among them, net interest income and non-interest income grew by 0.6% and-20.9% respectively, down 3% and 13pct respectively from the first half of the year. The growth rates of revenue and return net profit in the third quarter were-13.2% and 5.1% respectively, down 16.7% and 3.6pct compared with the previous quarter. Split earnings growth structure: (1) net interest income "volume increase is difficult to offset price decline", the margin of scale on performance growth is weakened, and the drag of interest spread on performance is increased. (2) non-interest continues the trend of negative growth, and it is a drag on the growth rate of performance. (3) the marginal contribution of provision to performance growth increases, which still constitutes the main support of profit growth.
Table expansion slowed down, loans showed a "strong to the public, weak retail" pattern. At the end of 3Q, Zhangjiagang Bank's total assets, interest-bearing assets and loans grew at a year-on-year growth rate of 9.9%, 9.5% and 11.5% respectively, which were-2.9,3.2 and 0.1pct respectively at the end of the last quarter. In terms of loans, it increased by 4 billion in the third quarter alone, an increase of 500 million over the same period last year, and the proportion of interest-bearing assets increased to 62% from the end of the last quarter, and credit expansion maintained a certain intensity. At the structural level, 3Q increased by 17, 0 and 2.3 billion respectively for public, retail and bills in a single quarter, with year-on-year changes of 10,-26 and 2 billion, showing the characteristics of "strong to public and weak in retail". The industry may still focus on inclusive benefits, manufacturing and other areas, and the loan growth rate of agriculture-related and small and micro enterprises, private enterprises and science and technology enterprises is higher than that of other loans at the end of September.
Deposit growth has slowed down. At the end of 3Q, Zhangjiagang Bank's total liabilities, interest-paying liabilities and deposits grew by 10.1%, 10% and 13.4% respectively compared with the same period last year, down 3.1,3.1 and 3.8pct respectively from the middle of the year. 3Q deposits fell 2.2 billion in a single quarter, up 4.7 billion from a year earlier, and as a share of interest-paying liabilities fell 2.5pct to 85 per cent from the middle of the year. At the structural level, during the quarter, public and retail deposits decreased by 1.3 billion and 1 billion respectively, with a year-on-year increase of 2.2 billion and 2.5 billion. At the level of market liabilities, 3Q financial interbank liabilities and bonds payable increased by 62 and-1.5 billion respectively in the single quarter, a decrease of 1 billion and 1.4 billion respectively over the same period last year. At the end of the quarter, the two types of liabilities accounted for 14.9% of interest-paying liabilities, an increase of 2.5 pct over the medium term.
The narrowing range of NIM slows down. The net interest margin of Zhangjiagang Bank in the first three quarters was 2.03%, down 2bp from the first half of the year and 22bp from the beginning of the year, narrowing the margin of decline. The results show that the rate of return on asset-side interest-bearing assets decreased 1bp compared with the first half of the year, and under the influence of insufficient financing demand and continuous downward adjustment of LPR, there is still some downward pressure on stock loan pricing.
Interest-paying debt cost ratio compared with the first half of the upward 2bp, deposit fixed, long-term industry background, debt cost is still strong rigid. Looking forward to the whole year, the downward industry trend of loan interest rates is difficult to change, but with the in-depth development of the company's "two small" business, it is expected to partially slow down the downward pressure on loan yields. On the debt side, in recent years, the company has controlled the interest payment cost by appropriately adjusting the listing interest rate of deposits in various periods, lowering the FTP price of medium-and long-term deposits, and optimizing the term structure of deposits, but the effectiveness of cost control measures may be relatively limited in the short term, and NIM may still face narrowing pressure during the year.
Non-interest income continued to grow negatively, accounting for 17% of revenue. Zhangjiagang Bank's non-interest income in the first three quarters was 600 million (YoY-21%), accounting for 17% of revenue, down 0.7pct from the first half of the year. Of this total, net fee and commission income increased by 255% to 60 million compared with the same period last year, mainly driven by increased income from agency financial management and insurance fees. Net other non-interest income 540 million (YoY-28%), accounting for 90% of non-interest income, basically the same as in the first half of the year. Among them, investment income 370 million (YoY-37%) is the main drag on non-interest income, mainly affected by the reduction in the size of bond trading accounts.
The defect rate increased 7bp compared with the middle of the year, and the provision coverage rate decreased to 445%. At the end of 3Q, the defect rate of Zhangjiagang bank was 0.95%, which was 7bp higher than that at the end of last quarter. The follow-up rate was 1.37%, which was lower than that at the end of last quarter (10bp), and the forward-looking risk index was optimized.
The bad balance at the end of the quarter was 1.2 billion, an increase of 125 million over the middle of the year. The balance of provision was 5.32 billion, an increase of 140 million during the quarter. The annualized credit cost in the first three quarters was 0.55%, which was lower than that in the first half of the year (16bp). The amount of provision and non-performing write-off during the quarter slowed down slightly. At the end of 3Q, the provision coverage decreased by 66pct to 445% compared with the end of the previous quarter, and the loan allocation decreased by 26bp to 4.23% compared with the end of the previous quarter. Although the asset quality fluctuates, the risk compensation ability of the company is still relatively strong, and the profit margin is still abundant.
The capital adequacy ratio has a strong margin of safety. At the end of 3Q, the core level 1 / level 1 / capital adequacy ratio of the company was 9.6%, 11% and 13.3% respectively, all of which increased 14bp compared with the end of 2Q. Risk-weighted assets grew by 8.8%, down 2.6pct from the end of the previous quarter, and the intensity of capital consumption weakened when the pace of statement expansion slowed. At present, the proportion of convertible debt to equity in 2.5 billion is relatively low, the latest conversion price is 4.33 yuan per share, the strong ransom price is 5.63 yuan per share, and the current stock price is 4.21 yuan per share, which has not touched the conversion price. Considering that the convertible bonds are about to expire in November 2024, it is expected that the follow-up companies will release a strong momentum of performance-driven convertible debt to equity.
Earnings forecasts, valuations and ratings. Zhangjiagang Bank has always adhered to the strategic orientation of deeply ploughing the mainland and serving the region, focusing on the distribution of personal operating loans. Combined with its own market positioning and business advantages, the company focuses on micro-loan business, deepens the "two small two-round" speed competition mechanism, and promotes the coordinated development of small, micro and small enterprises.
At the same time, the company actively distributes the markets of Suzhou, Wuxi and Nantong, increases the share of deposits and loans, and excavates the new blue ocean in small and micro fields, so as to form a certain support for the steady expansion of credit and asset-end pricing. The quality of assets is relatively sound, the provision of surplus grain is abundant, and the ability to offset risks is strong. At the same time, the company has a strong margin of capital safety, and there are still 2.5 billion convertible bonds to be converted, and there are still strong performance release demands to drive the conversion. However, considering the uncertainty of the recovery of effective financing demand and the pressure of interest spread operation, we adjust the company's EPS forecast for 2023-25 to 0.84,0.94,1.08 yuan (the previous value is 0.91,1.1,1.33 yuan). The current stock price corresponds to PB valuation of 0.61,0.55,0.5 times, corresponding to PE valuation of 5.01,4.47,3.91 times, respectively, maintaining the "buy" rating.
Risk hint: the process of economic recovery is less than expected, the customer base of large state-owned banks is sinking more strongly, and the interest rate of small and micro loans is falling more than expected.