Industrial Bank's net profit for the first three quarters fell 9.5% year-on-year, and the decline in profit increased. The contribution mainly came from scale and taxation. The company's revenue is still under pressure, but interest income is growing steadily, and interest spreads highlight resilience; non-interest income continues to be under pressure due to processing fees and other non-interest rates. The non-performing rate declined slightly at the end of the third quarter. The share of concerned loans rose due to the new risk classification regulations. Stock risks continued to be clarified, and incremental forward-looking indicators improved. The difference is that incremental provisions continued to grow, stock provisions declined slightly, and write-off disposal may still be active.

The company's profitability and competitiveness rank at the top of the stock market. At this stage, due to last year's high base and stock risks, the company's performance is low in stages, and its performance is phased low. As the base is lowered or relatively improved, it has maintained an increase in holdings rating.

Key points to support ratings

The decline in profit and revenue increased. The absolute level of profit was still at the head of the stock bank, Industrial Bank. Net profit for the first three quarters fell 9.5% year-on-year. The profit decline was 4.6 percentage points compared to the first half of the year. Unlike the industry, the performance contribution mainly came from scale, followed by taxation. ROAE was 12.13%, down 2.60 percentage points year on year. Absolute profitability is still high compared to stock market peers. The core Tier 1 capital adequacy ratio at the end of the third quarter was 9.47%, down 28 bps from the previous year.

Operating income for the first three quarters fell 5.6% year on year, an increase of 1.4 percentage points over the first half of the year. The third quarter's revenue fell 8.6%. The decline was larger than the previous quarter. Interest income increased 5.0% year on year. Growth fundamentals were stable, non-interest income declined, and the decline increased, suppressing revenue. Profit before provision for the first three quarters fell 7.7% year on year, and the year-on-year growth rate of asset impairment losses was corrected, suppressing profit growth.

Interest income was growing in the first three quarters, and interest spreads highlighted resilience

Net interest income for the first three quarters increased 1.1% year on year. The growth rate changed from negative to positive compared to the first half of the year. The quarterly growth rate for the third quarter was 5.0%, which was slightly slower than the previous quarter, but the growth rate was positive for two consecutive quarters. The company's net interest spread for the first 3 quarters was 1.94%, down 16 bps year on year, but only 1 bps lower than in the first half of the year. The company disclosed that deposits for the first 3 quarters were flat year over year, deposit costs did not decrease year over year, and downward pressure on the asset side continued. The company announced that the quarterly net interest spread for the 3rd quarter was 1.92%, a slight decrease of 1 bps from the previous month, and the performance was stable.

The growth in the size of deposits and loans has accelerated

At the end of the third quarter, the company's total assets increased 9.2% year on year, down 0.9 percentage points from the growth rate at the end of half a year. Among them, loans increased 9.9% year on year, and the growth rate increased 0.6 percentage points from the end of half a year. Looking at the split, public loans (excluding notes) increased by 23.0% year on year, personal loans increased by 0.1% year on year, and bill discounts fell 26.4% year on year. Deposits increased 11.7% year on year, and the growth rate was 0.9 percentage points higher than at the end of half a year.

Non-interest income is growing rapidly

Non-interest income in the first three quarters fell 17.0% year on year. Among them, fee revenue fell 30.4% year on year. There was a negative year-on-year increase for 3 consecutive quarters. The decline in the scale of old wealth management products and fluctuations in the capital market continued to affect financial processing fees.

Other non-interest income fell 2.6% year on year, and the growth rate changed from positive to negative compared to the first half of the year, mainly due to market interest rate fluctuations in the third quarter and a phased correction in the valuation of transactional financial assets.

Asset quality is generally stable, and write-off and disposal is active

The non-performing rate at the end of the third quarter was 1.07%, down 1 bps from the previous quarter, and the non-performing amount rose 1.5% month-on-month; concerned loans accounted for 1.53%, up 18 bps from the medium term, stemmed from the implementation of the new risk classification regulations, and downgraded some projects that were not overdue but had potential risks to the category of concern. The company's announcement indicates that the asset quality of real estate and government financing platforms has stabilized. Although there is some pressure on credit card asset quality, forward-looking indicators have improved. Asset impairment losses in the first three quarters rose 2.8% year on year, and incremental provisions rose, which is different from the industry. The provision coverage rate at the end of the third quarter was 237.78%, down 8.0 percentage points from the previous quarter; the loan ratio was 2.55%, down 9 bps from the previous quarter. If there were no more non-loans mentioned, judging from changes in stock provisions and incremental provisions, write-off and disposal were still active.

valuations

According to the results of the 3rd quarter report, we maintain our profit forecast for the company. The 2023/2024 EPS is 3.93/4.56 yuan. The current stock price corresponding to 2023/2024 PB is 0.44x/0.39x, maintaining an increase in holdings rating.

The main risks faced by ratings

Economic downturn and overseas risks exceed expectations.