Matters:

The Bank of Changsha released its 2023 performance report. The net profit of the Bank of Changsha in 2023 increased 9.57% year on year, operating income increased 8.46% year on year, the non-performing loan ratio was 1.15%, and the provision coverage rate was 314.21%. In terms of size, by the end of 2023, the asset size of Bank of Changsha had increased by 12.7% year on year, with loan size increasing by 14.6% year on year and deposit size increasing by 13.9% year on year.

Ping An's point of view:

The revenue performance was impressive, and the level of profit continued to increase rapidly. The net profit of the Bank of Changsha increased 9.57% (+9.21%, 23Q1-3) year on year in 2023. The steady level of revenue provided a good support for profit. Operating income for the full year of '23 increased 8.46% year on year (+8.44%, 23Q1-3). It is not easy to maintain a stable level of growth in the context of declining asset-side interest rates. Considering that the company's share of county business is gradually becoming prominent, declining customers in the context of manageable risk may enhance the resilience of the company's asset-side interest rates and continue to be optimistic about the continued release of county business scale dividends.

The scale growth rate remains stable, and we are optimistic that growth momentum will be unleashed. In terms of size, Bank of Changsha's assets increased 12.7% year on year in 2023 (+15.8%, 23Q3), with loans increasing by 14.6% year on year (+15.2%, 23Q3). The growth rate level declined due to seasonality, and its contribution to the public sector is expected to remain prominent. On the debt side, deposits increased 13.9% year over year (+14.1%, 23Q3), maintaining a relatively fast level.

Asset quality has been steadily improved, and risk compensation capabilities have been continuously strengthened. By the end of 2023, the Bank of Changsha's non-performing rate fell 1BP to 1.15% from the end of the 3rd quarter, and is at the best level in recent years. In terms of provision, the company's provision coverage rate for the end of 2023 increased 2.95pct to 314% from the end of the 3rd quarter. The loan ratio remained the same as at the end of the 3rd quarter of 3.61%, and risk compensation capacity continued to improve.

Investment advice: The region's dominant position is obvious, and the county's contribution is beginning to be evident. As a high-quality local commercial bank deeply involved in Hunan, the Bank of Changsha's continuous release of regional strategic dividends has led to the construction of a broad public business market. Abundant consumer spending energy has created favorable external conditions for the development of its retail business. In particular, the company's broad and deep channel network and mature institutional approach in the county area have provided good support for the company's business development, and the competitive advantage in the county market is expected to be maintained. Furthermore, the orderly progress of the company's 11 billion convertible bond issuance plan will continue to consolidate its capital strength and add weight to the company's long-term development. We maintain the company's profit forecast for 23-25. The corresponding EPS is expected to be 1.98/2.30/2.65 yuan, respectively, and the corresponding profit growth rate is 16.9%/16.1%/15.4%, respectively. The current stock price corresponding to the 23-25 PB is 0.47x/0.42x/0.37x, respectively, maintaining the company's “recommended” rating.

Risk warning: 1) The economic downturn has led to a rise in pressure on the asset quality of the industry that exceeds expectations. 2) As interest rates declined, industry interest spreads narrowed beyond expectations. 3) Increased pressure on housing companies' cash flow has led to an increase in credit risk.