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Jiangyin Bank released its three-quarter report for 2023. The first three quarters achieved operating income of 2,978 billion yuan, +0.44%, a growth rate of -0.81 PCT compared to the first half of the year; net profit of 1,056 billion yuan, +15.15% over the same period, and a growth rate of +0.92 PCT in the first half of the year.

The overall performance in the third quarter was relatively good

Looking at a single quarter, Jiangyin Bank achieved revenue in 23Q3 and net profit of 917 million yuan and 399 million yuan respectively, a year-on-year difference of -1.34% and +16.70%, respectively. The year-on-year growth rate was +0.08PCT and +1.13PCT, respectively, compared to the second quarter. By business, the improvement in 23Q3 revenue growth was mainly driven by net income from handling fees and commissions, and other non-interest net income. 23Q3 achieved net income from fees and commissions and other non-interest net income of 0.36 billion yuan and 156 million yuan in a single quarter, +198.95% and 64.66%, respectively. The year-on-year growth rates were +211.75 and +45.10PCT, respectively, compared to the second quarter. The sharp improvement in Chinese income was mainly due to the lower middle income base in the same period last year due to an increase in processing fees for billing operations. Other improvements in non-interest net income were mainly due to a decrease in profit and loss due to changes in the fair value of current transactional financial assets. Judging from performance attribution, we believe that the increase in net profit for the first three quarters mainly benefited from the expansion of reserve schemes and interest-bearing assets; judging from the marginal changes in contribution, the contribution of the expansion of interest-bearing assets decreased, interest spreads dragged down the margin, and the contribution of provisions to profits increased.

Credit maintained double-digit growth, and the structure showed “strong against the public, weak retail” 23Q3 Jiangyin Bank achieved net interest income of 724 million yuan in a single quarter, -11.92% year-on-year, and -5.24PCT month-on-month growth, mainly dragged down by interest rate spreads. In terms of the scale of credit investment, as of the end of 23Q3, Bank of Jiangyin had a loan balance of 114.452 billion yuan, +12.03% over the same period last year. The growth rate was -0.27PCT in the first half of the year. Overall credit investment maintained double-digit growth. Judging from the new loans added in a single quarter, Jiangyin Bank added 2,532 billion yuan in loans in 23Q3, an increase of 33 million yuan over the previous year. Of the new credit, bill discounting, and retail sales accounted for 88.21%, 20.59%, and -8.80% respectively, accounting for +11.57, -0.43, and -11.14PCT, respectively. Investment in public credit performed well, and retail credit investment was weak. From the perspective of net interest spreads, Jiangyin Bank's net interest spread for the first three quarters was 2.07%, compared to -13BP in the first half of the year. According to our estimates, the decline in net interest spreads is expected to be mainly dragged down by the asset side. It is estimated that Jiangyin Bank's asset-side yield for the first three quarters was 3.67%, compared to 5BP in the first half of the year. It is estimated that the current lack of effective financing demand compounded by the LPR reduction is mainly due to insufficient demand for effective financing.

Debt-side costs are relatively stable. The main reason is that companies have vigorously increased the retention rate of settlement funds through products such as “Notice Bao” and “Ticket Treasure”, driving the optimization of deposit structures, and maintaining relatively stable deposit costs. Looking ahead, there is still downward pressure on loan interest rates in the short term. Debt-side companies once again lowered deposit listing interest rates in September. Subsequent debt-side costs are expected to improve through lower deposit interest rates and structural optimization. Overall, there is still some pressure to narrow the company's net interest spread in the short term, but the pressure will gradually ease, and subsequent debt-side cost improvements are expected to support the stabilization of interest spreads.

Asset quality has improved, and provisions are adequate

As of the end of 23Q3, Jiangyin Bank's non-performing loan balance was 1,116 billion yuan, +11.38% year-on-year, and the growth rate was -0.99PCT month-on-month. Jiangyin Bank's non-performing rate and attention rate were 0.98% and 1.07% respectively, compared to the middle of the year, 0 BP and -17 BP, respectively. Attention is a poor forward-looking indicator, and the attention rate has improved markedly. It is expected that the company's overall asset quality will continue to improve in the future. In terms of provisions, as of the end of 23Q3, Jiangyin Bank's provision coverage rate was 437.17%, compared to -27.04PCT in the middle of the year. Against the backdrop of sufficient provisions and stable, moderate and improving asset quality, there is plenty of room for subsequent provisions to feed back profit margins.

Profit Forecasts, Valuations, and Ratings

Considering that there is still downward pressure on the company's asset-side yield in the short term, we expect the company's operating income for 2023-2025 to be 38.64, 41.84, and 4.651 billion yuan (original values were 41.67, 46.08, and 5.027 billion yuan), with year-on-year growth rates of 2.24%, 8.26%, 11.18%, and a three-year CAGR of 7.16%; net profit of 18.40, 20.74, and 2,291 billion yuan (original values were 1,812, 20.82, 2,360 billion yuan), with year-on-year growth rates, respectively It was 13.86%, 12.74%, and 10.42%, and the 3-year CAGR was 12.33%. In view of the company's significant location advantages and strong business resilience, we maintained a target price of 5.66 yuan and maintained a “buy” rating.

Risk warning: economic recovery falls short of expectations, deterioration in asset quality, changes in regulatory policies