Incidents:

On January 19, the Bank of Changsha released its 2023 performance report, achieving operating income of 24.8 billion yuan, an increase of 8.5% over the previous year, and a net profit of 7.46 billion yuan, an increase of 9.6% over the previous year. The annualized weighted average return on net assets was 12.5%, down 0.07pct from the same period last year.

Comment:

The revenue and profit growth rate increased slightly, and non-interest revenue is expected to be the main driver. The year-on-year growth rates of the company's revenue and net profit to mother in 2023 were 8.5% and 9.6%, respectively, up 0.1 and 0.4 pct from 1-3Q23; 4Q single-quarter revenue and net profit to mother grew 8.5% and 10.9% year-on-year, with changes of 0.8 and -4.5 pct, respectively, from the same period last year. Under the influence of factors such as lower interest rates on existing mortgages and a slowdown in the pace of table expansion, the company's 4Q net interest income is expected to be under pressure, and revenue profit growth is steady or mainly supported by non-interest income. Interest rates in the bond market have declined markedly since the 4th quarter, and corporate bond valuation earnings are expected to grow relatively well.

Actively launching a “good start” in the winter reserve war, credit investment is expected to maintain a high level of prosperity in 2024. In 23Q4, the total assets added by the company in a single quarter were 2.4 billion yuan, a year-on-year decrease of 2.6 billion dollars. The total assets growth rate was 12.7%, down 3.1 pct from the end of the 3Q; the new loan scale was 300 million yuan, a decrease of 1.9 billion yuan year-on-year, and the loan balance grew by 14.6% year on year, down 0.6 pct from the end of 3Q. The company's 2023 credit investment target (parent bank caliber) is 60 billion dollars, while the new credit scale (group caliber) in the first three quarters has reached 62 billion dollars, basically completing the annual credit investment target. The decline in credit in 23Q4 may be due to a “good start” in preparation for 2024. Since October 2023, the company has actively carried out winter project storage work, and is deeply integrated into the construction of major projects in Hunan Province and the high-quality development of the manufacturing industry in 2024. It is expected that 24Q1 credit investment will achieve a “good start”, and the credit scale is expected to maintain good growth throughout the year.

Deposits continued to grow well, and the improvement in the deposit-to-loan ratio provided a stable source of capital for a “good start” in early '24. In 23Q4, the company added 26.2 billion dollars in a single quarter, an increase of 1.9 billion dollars over the previous year. The deposit balance growth rate was 13.9%, a slight decrease of 0.2 pct from the end of the 3rd quarter; the deposit-to-loan ratio was 74.1%, down 3 pcts from the end of the 3rd quarter. In 23Q4, the company's savings collection work was carried out in an orderly manner. The overall deposit size grew relatively well, and the deposit-to-loan ratio declined. The degree of matching between funding sources and capital utilization in the deposit and loan sector has been improved, helping to further consolidate the safe space for liquidity supervision indicators at the end of 2023 and provide a stable capital reserve for credit investment in early 2024.

Bad indicators have achieved a “double reduction”, and the ability to offset risks has been further improved. At the end of 23Q4, Bank of Changsha had a non-performing loan balance of 5.6 billion yuan, down about 40 billion from the end of the 3Q; the non-performing loan ratio was 1.15%, down 1 bps from the end of 3Q, and the bad indicators achieved a “double drop”. The provision coverage rate was 314.2%, up 3pct from the end of the 3Q; the loan ratio was 3.61%, which was basically the same as at the end of the 3Q. It is expected that the 23Q4 company's bad disposal efforts will increase, while maintaining a certain level of reserve planning to further improve its ability to offset risks.

Profit forecasting, valuation and ratings. In recent years, Bank of Changsha has maintained a high credit growth rate. In 2023, it achieved its annual credit investment target ahead of schedule, and is actively preparing for a “good start” in 2024. Credit investment is expected to maintain a high boom this year; in terms of pricing, the expansion of the county market is expected to further open up the company's business space in the sinking market, and asset-side pricing is expected to maintain good resilience. At the same time, the company continues to deepen the implementation of the retail transformation strategy. AUM for wealth customers has maintained rapid growth, the financial management business has given a strong boost to revenue, and the retail business is expected to become another growth curve for the company.

Maintain the company's 2023-2025 EPS forecast of 1.88/2.07/2.27 yuan. The current stock price is 0.47/0.42/0.37 times the PB valuation, respectively, and the corresponding PE valuation is 3.75/3.41/3.10 times, respectively, maintaining the “buy” rating.

Risk warning: The downward pressure on the macroeconomic economy is increasing, and credit tolerance falls short of expectations.