The Bank of Lanzhou is deeply involved in Lanzhou, leading the whole province. Business transformation is speeding up, capital and liability expansion is steady, interest spread performance is stable, and risks are steadily clearing out.
Matters: The Bank of Lanzhou released its 2023 three-quarter report. Operating income and net profit for the first three quarters of 2023 were +9.78%/+9.98%, respectively; the non-performing rate was 1.70%, the same month-on-month.
Profit growth continues, and provision plans are being strengthened. The company's net profit for the first three quarters of 2023 was +9.98% year-on-year (+15.68% in the first half of the year). According to the breakdown of profit factors, there was a further increase in revenue, and revenue for the first three quarters was +9.78% year-on-year (+8.96% in the first half of the year), mainly benefiting from the increase in net income under steady expansion and the increase in profit and loss from changes in fair value under market fluctuations; 2) Steady cost expenditure. Cost control in the first three quarters increased slightly by 0.19pct to 28.70%, and cost control remained steady; 3) Disposal accelerated, assets in the first three quarters Impairment losses were +7.79% year-on-year (+20.15% year-on-year in the first half of the year). Along with the improvement in revenue, the company has strengthened disposal efforts, and asset quality is expected to improve.
Capital and liability expansion was steady, and interest spread performance was stable. The company's net interest income for the first three quarters of 2023 was +6.35% year-on-year (+7.86% in the first half of the year). 1) Credit investment was steady. The company's total assets in the third quarter were -0.59% month-on-month (-0.17% in the second quarter), total loans +0.28% month-on-month (+3.20% in the second quarter), and financial investment -4.43% month-on-month (-0.08% in the second quarter). The company's credit investment was steady, and the pressure on transactional financial assets fell. 2) Interest spreads in the third quarter were relatively stable. According to disclosure standards, the net interest spread for the first three quarters was 1.50%, down 1 bps from month to month (-7 bps month-on-month in the first half of the year). The company's quarterly pricing control was strong, and interest spread performance was relatively stable.
Non-interest income progressed steadily, and other non-interest quarters strengthened. The company's non-interest-bearing revenue for the first three quarters was +20.12% YoY (+12.16% YoY in the first half of the year). 1) As spending increased, China's income continued to decline. Net income from handling fees and commissions in the first three quarters was -10.53% year-on-year (-3.33% year-on-year in the first half of the year). Among them, the revenue side of handling fees increased steadily, and processing fees such as payment-side settlement increased steadily, while business fees such as payment-side settlement increased. 2) Other non-interest income strengthened further, with +27.52% in the first three quarters (+15.97% year-on-year in the first half of the year), mainly benefiting from the increase in investment income brought about by financial asset trading and the increase in the fair value of traded financial assets held under market fluctuations.
Asset quality is improving, and safety cushions are being prepared steadily. The company's non-performing ratio at the end of the third quarter was 1.70%, flat month-on-month. Concerned that the loan ratio declined by 0.25pct to 5.10% month-on-month, asset quality continued to be stable, moderate and positive. In terms of provisions, the company's asset impairment for the first three quarters was estimated at +7.79% year-on-year (+20.15% year-on-year in the first half of the year), maintaining a strong trend; provision coverage at the end of the third quarter declined slightly by 1.50 pcts to 195.46% month-on-month, maintaining a steady level.
Risk factors: Macroeconomic growth has declined sharply, the quality of bank assets has deteriorated beyond expectations; regional economic sentiment has fluctuated greatly; progress in corporate strategies has fallen short of expectations; and changes in regulation and industry policies have exceeded expectations.
Investment suggestions: Bank of Lanzhou is deeply involved in Lanzhou, leading the whole province. Business transformation is speeding up, capital and liability expansion is steady, interest spread performance is stable, and risks are steadily clearing out. Considering the steady trend of the company's operations since the beginning of the year, we adjusted the company's 2023/24 EPS forecast to 0.33/0.35 yuan (original forecast 0.30/0.31 yuan), adding EPS for 2025 to 0.38 yuan. The current A-share price corresponds to 0.51x PB in 2023.