Core views:

Zijin Bank disclosed its report for the third quarter of 2023. The cumulative revenue, PPOP, and net profit for the first three quarters of 23 years increased by 0.4%, 2.8%, and 5.8% year-on-year respectively. The revenue growth rate declined compared to the first half of the year, and the profit growth rate rebounded slightly. Revenue, PPOP, and net profit for the 23Q3 single quarter increased -1.7%, 3.6%, and 6.0% year-on-year respectively. Only the growth rate of net profit of the mother increased 2 times over the previous quarter. Judging from the cumulative performance of the first three quarters, scale growth, provision planning, cost-to-income ratio, and non-interest income were the main positive contributions, while interest spreads were the main negative contributions.

Highlights: (1) The balance and liability structure has been optimized, and interest spreads have remained stable. On the asset side, loans were added by 14.6 billion yuan in the first three quarters of 23 years, a year-on-year decrease of 3.1 billion yuan, mainly a decrease of 5.9 billion yuan in notes, an increase of 2 billion yuan in personal loans, an increase of 2.3 billion yuan over the previous year, and 16.5 billion yuan in public loans, an increase of 600 million yuan over the previous year. At the end of the third quarter, the share of loans in interest-bearing assets increased to 71.1%, and the share of personal loans in loans increased to 36.6%. Asset structure optimization is expected to support asset-side returns. On the debt side, deposits were added by 19.5 billion yuan in the first three quarters of 23 years, an increase of 1 billion yuan over the previous year. The increase mainly came from personal time deposits. There was also a good increase in public life savings, with a year-on-year increase of 4.5 billion yuan. The share of deposits in interest-bearing debt increased to 87.9% at the end of the third quarter. Demand deposits rebounded slightly compared to the end of the first half of the year. It is expected that the cost ratio of interest-bearing debt will improve. Thanks to the optimization of the balance and liability structure, the cumulative net interest spread for the first three quarters of 23 years was 1.59%, which remained the same as in the first half of the year. It is estimated that the yield on interest-bearing assets increased slightly, and the cost ratio of interest-bearing debt decreased slightly. (2) The growth in the middle income is outstanding. Revenue for the first three quarters of 23 years increased 140% year on year. It is expected that mainly agency business revenue will increase rapidly, while handling fee expenses will also be reduced.

Attention: Asset quality has improved, but interest rates have fluctuated. At the end of the third quarter of '23, the non-performing rate was 1.16%, down 3 bps from the end of the first half of the year, the attention rate was 1.08%, up 19 bps from the end of the first half of the year, the provision coverage rate was 253.68%, up 2.44pct from the first half of the year, and the ability to offset risk increased. It is estimated that the rate of new bad generation in the first three quarters was 0.20%, and the pressure for bad generation was low.

Profit forecast and investment advice: stable interest spreads and improved asset quality. Net profit growth for 23/24 is expected to be 5.9%/9.1%, EPS is 0.46/0.50 yuan/share, BVPS is 4.97/5.36 yuan/share, current stock price corresponding to 23/24 PE is 5.6X/5.1X, and PB corresponding to 23/24 is 0.5X/0.5X. The company is rooted in mainland Nanjing. Its geographical advantages and deposit advantages are obvious, and retail transformation and wealth management development have accelerated. Referring to the company's PB (LF) valuation center and fundamentals in the past two years, the company was given 0.8 times the PB valuation in '23, corresponding to a reasonable value of 3.97 yuan/share, and maintained an “increased holdings” rating.

Risk warning: (1) the economy has declined beyond expectations, (2) asset quality has deteriorated sharply, (3) regional deposit competition has intensified, and (4) interest rate fluctuations have exceeded expectations.