Investment highlights: The Bank of Hangzhou released its 2023 performance report. Annual revenue increased 6.33% year on year, up from the 23Q3 growth rate; net profit to mother increased 23.15% year on year, and the company's weighted average ROE increased 1.48 pct year on year to 15.57% year on year. The company's non-performing rate has stabilized at 0.76%, and future provisions are expected to continue to decline to release profits. We maintain the “superior to the market” rating.
Revenue growth accelerated. The company's revenue in the 23Q4 quarter increased 10.4% year on year, driving the year-on-year revenue growth rate for the full year of 2023 to 6.33%. Considering that net interest income in the fourth quarter was still under pressure, revenue growth accelerated or was due to a significant increase in non-interest income. Net profit to mother increased 12% year-on-year in the 23Q4 single quarter.
The share of asset-side loans increased. The company's total 23Q4 loan volume increased 14.94% year on year, exceeding the year-on-year growth rate of assets (13.91%). The growth rate on the asset side was basically in line with the debt side, and total deposits increased by 12.63% year on year.
The defect rate has stabilized at a low level, and there is still room for profit to be released in the future. The Bank of Hangzhou's non-performing loans ratio at the end of '23 was flat month-on-month compared to 23Q3, and remained stable at 0.76% for the full year of '23. The provision coverage rate decreased slightly by 8.1 pct to 561.42% compared to 23Q3. We believe that the Bank of Hangzhou has sufficient reserves and excellent asset quality, and there is room for further profit release in the future.
Investment advice. We forecast EPS of 2.27, 2.79, and 3.33 yuan in 2023-2025, with net profit growth rates of 22.21%, 21.53%, and 18.62%. We obtained a reasonable value of 17.06 yuan based on the DDM model (see Table 2); according to the PB-ROE model, the 2023E PB valuation was 1.30 times (0.56 times that of a comparable company), and the corresponding reasonable value was 20 yuan. Therefore, the reasonable value range was 17.06-20.00 yuan (corresponding PE 7.51 to 8.81 times in 2023, 4.17 times PE for same company), maintaining the “superior to market” rating.
Risk warning: The solvency of enterprises has declined, asset quality has deteriorated dramatically; financial supervision policies have undergone major changes.