Incidents:
Industrial Bank released its 2023 three-quarter report. The first three quarters achieved operating income of 161,296 billion yuan, -5.59% year-on-year, a growth rate of -1.45PCT compared to the first half of the year; net profit of 64,965 billion yuan, -9.53% year-on-year, and a growth rate of -4.61PCT in the first half of the year.
Non-interest drags down overall performance
Looking at a single quarter, Industrial Bank achieved revenue and net profit of $22.49 and $22.285 billion respectively in 23Q3, with year-on-year differences of -8.64% and -17.22%, respectively. The year-on-year growth rates were -7.20PCT and -18.70PCT in the second quarter, respectively. By business, the decline in 23Q3 revenue growth was mainly dragged down by non-interest income. 23Q3 achieved non-interest revenue of 13.122 billion yuan in a single quarter, -33.14% year-on-year, and -21.33PCT year-on-year growth compared to the second quarter. The weakening of non-interest income is mainly due to: 1) the decline in income due to fluctuations in the capital market; 2) the increase in profit and loss due to changes in fair value. In 23Q3, the profit and loss from changes in fair value of Industrial Bank was -2,595 million yuan, compared to -133 million yuan in the same period last year. It is estimated that mainly due to fluctuations in market interest rates in the third quarter, the valuation correction of transactional financial assets was mainly due to fluctuations in market interest rates in the third quarter. Judging from performance attribution, we believe that the negative growth in net profit of the first three quarters was mainly dragged down by medium income; judging from the marginal changes in contribution, the contribution of the expansion of the scale of interest-bearing assets decreased, interest spreads dragged down marginal mitigation, and the contribution of provisions to profit changed from positive to negative.
Credit investment accelerated, and the structure showed that “strong for the public, weak retail” 23Q3 Industrial Bank achieved net interest income of 37.127 billion yuan in a single quarter, +4.96% year-on-year, and a growth rate of -0.13PCT over the previous quarter. The overall performance of the interest spread business was relatively good. In terms of the scale of credit investment, as of the end of 23Q3, Industrial Bank's loan balance was 5.31 trillion yuan, +9.93% year-on-year, and the growth rate was +0.58PCT in the first half of the year. Overall credit investment accelerated. In terms of new loans added in a single quarter, Industrial Bank added 91,597 billion yuan in loans in 23Q3, an increase of 33.398 billion yuan over the same period last year. Among them, public loans, bill discounting, and retail loans were +941.50, -3.78, and -2175 billion yuan respectively, compared to +444.39, +167.30, and -27.771 billion yuan. The performance of public credit investment is good, and it is expected that the company's credit investment situation on the new circuit is good; as of the end of 23Q3, corporate loans in the fields of inclusive finance, science and innovation finance, energy finance, auto finance, and park finance increased by 34.41%, 25.78%, 10.83%, 24.42%, and 23.78% respectively over the end of the previous year, all significantly higher than the overall credit growth rate of 6.64%. Retail credit investment is weak, and is expected to be affected by early loan repayment, etc. From the perspective of net interest spreads, Societe Generale's net interest spread for the first three quarters was 1.94%, compared to 1BP in the first half of the year and -16BP year-on-year. The debt-side deposit cost ratio of Industrial Bank remained flat year-on-year in the first three quarters, and the year-on-year decline in net interest spreads is expected to be mainly due to multiple cuts in LPR, which put pressure on asset-side yields. Looking at a single quarter, Société Générale's net interest spread in 23Q3 was 1.92%, or -1BP month-on-month, and the overall interest spread showed strong resilience.
The performance of the Chinese stock market is under pressure but the foundation continues to be consolidated
In 23Q3, Industrial Bank achieved net revenue from handling fees and commissions of 6.986 billion yuan in a single quarter, -30.62% year-on-year, and a growth rate of -17.85 PCT month-on-month. The marginal performance of China Revenue weakened markedly, mainly due to: 1) Weak capital market performance in the third quarter led to a year-on-year decline in financial management fee revenue; 2) the company's pressure reduced the scale of some old wealth management products. On the other hand, the company's customer base continues to be consolidated, and the number of customers continues to grow rapidly. As of the end of 23Q3, IB retail customers and private bank customers were +7.73% and +7.03% respectively compared to the beginning of the period. Following a gradual recovery in capital market performance, the company's revenue is expected to recover quickly.
Asset quality remained steady, and asset quality in key risk areas stabilized. As of the end of 23Q3, Industrial Bank's non-performing rate and attention rate were 1.07% and 1.53%, respectively, compared to the middle of the year, -1BP and +18BP, respectively. Overall asset quality remained stable. There has been a significant increase in the attention rate, mainly due to companies taking the initiative to downgrade some outstanding projects with potential risks to the category of concern, thereby encouraging management institutions to expedite resolution and disposal. For key areas such as real estate and government financing platforms, the company has set up flexible and agile teams at the head office level to collaborate with branches to resolve related risks. Currently, the asset quality of the real estate and government financing platform business has stabilized. In terms of provisions, as of the end of 23Q3, Industrial Bank's provision coverage rate was 237.78%. Compared with -7.99PCT in the middle of the year, the provision was sufficient.
Profit Forecasts, Valuations, and Ratings
Considering that it will take time for capital market performance to improve, we expect the company's operating income for 2023-2025 to be 2188.69, 2332.61, and 250630 billion yuan (original values were 2292.35, 2477.02, and 266.647 billion yuan), with year-on-year growth rates of -1.58%, 6.58%, and 7.45% respectively, and a three-year CAGR of 4.07%; net profit of 901.73, 976.75, and 105081 billion yuan (original values were 969.62, 1066.29, 115.016 billion yuan), with year-on-year growth rates of -1.32%, 8.32%, and 7.58%, respectively, and a 3-year CAGR of 4.77%.
In view of the company's strong resilience in interest spreads and abundant customer resources in the same industry, we gave the company 0.55 times PB in 2024, with a target price of 21.03 yuan, maintaining a “buy” rating.
Risk warning: economic recovery falls short of expectations, deterioration in asset quality, changes in regulatory policies