Event: The company recently released its report for the third quarter of 2023. In the first three quarters, the company achieved total operating income of 28.214 billion yuan, +21.09% year-on-year, net profit of 5.266 billion yuan, +5.95% year-on-year, and EPS of 0.42 yuan. Weighted ROE rebounded slightly by 0.16% to 5.37%. As of the end of the reporting period, the company's total assets were 1,086.729 billion yuan, up 6.15% from the beginning of the year.
The contribution of finance companies and banking services has boosted revenue growth. Finance companies, commercial banks, and financial leasing businesses contributed over 90% of the company's revenue. Interest income was the main source of revenue. In the first three quarters, it reached 24.884 billion yuan, +22.66% over the same period last year, with a steady increase in structured share. As of the disclosure in the interim report, the company's financial company/commercial bank/financial business/other business/trust business revenue for the first half of the year reached 80.82/77.54/14.80/11.26/243 billion yuan respectively, +40.58%/+12.07%/-0.02%/+28.57%/-27.12% over the same period last year. In the first half of the year, in response to the decline in LPR and the narrowing of loan interest spreads, the company stepped up marketing efforts to steadily improve efficiency. At the same time, the growth in cross-border settlement with the Middle East and Iran contributed to a high increase in the net profit contribution of Bank of Kunlun, and the size of assets and deposits and loans increased markedly year-on-year.
The reform of the new assessment system for central state-owned enterprises has increased energy storage for ROE. In March 2023, the State Assets Administration Commission adjusted the “two interest and four rates” to “one profit and five rates”, using ROE to replace the net profit index and the operating cash ratio to replace the operating income profit margin, which is expected to guide enterprises to improve quality and efficiency, achieve the strategic goal of “one increase, one steady, four increases”, and stabilize core competitiveness. The company's ROE in recent years has been affected by capital market fluctuations and narrowing interest spreads. The company's ROE for 2020/2021/2022 was 9.05%/6.09%/5.22% respectively. ROE in the first three quarters of 2023 rebounded slightly to 5.38%, which is a slight recovery in the company's net profit (+0.37% year-on-year). Subsequent companies are expected to further expand industrial chain finance and continue to optimize operating efficiency.
Clear the shares of Chinese and Italian financial insurance or help efficient operations. In 2023, the State Assets Administration Commission issued the “Interim Measures on the Administration of Shareholding Participation of State-owned Enterprises”, which stipulate that state-owned enterprises shall focus on their main business, strictly control investment in non-main businesses, and shall not carry out prohibited business as stipulated in the negative list of investment projects through shareholding, etc. The company's November 2023 announcement revealed that it plans to transfer 51% of the shares of Sino-Italian Financial Insurance. As a property insurance company under the company, Sino-Italian Financial Insurance's business coincides with CNPC's exclusive insurance system. Performance has fluctuated greatly in recent years, and the transfer will help the company improve asset allocation efficiency, promote structural optimization, and thus improve profitability and quality.
In summary, with the RMB internationalization process and the “Belt and Road” advancing further, the company is expected to have in-depth cooperation with countries along the route and expand the depth and breadth of international business. We expect the company's 2023-25 EPS to be 0.46/0.50/0.55 yuan, respectively, and the corresponding PE for 2023 to be 12.97x, which is raised to a “buy” rating.
Risk warning: capital market turmoil, LPR decline continues; oil industry prosperity declines; credit risk.