Revenue continues to grow at a high level, and profitability is steady, moderate and positive

Bank of Changsha achieved revenue and net profit to mother of 24.803 billion yuan and 7.463 billion yuan (YoY +8.46% and +9.57%) respectively for the full year of 2023, and profitability increased steadily. Q4 achieved revenue of 6.051 billion yuan in a single quarter, up 8.54% year on year; profit before tax and net profit to mother for the single quarter were 2,044 billion yuan and 1,618 billion yuan respectively, up 8.19% and 10.89% year on year, respectively. The growth rate was both higher than in Q3. We maintain our profit forecast. We expect net profit to be 8.475 billion yuan, 9.598 billion yuan, YoY +12.59%, and +13.26%. The current stock price (2024-01-19 closing price) corresponds to the 2024/2025 PB 0.4/0.4 times, respectively, maintaining a “buy” rating.

Pre-loan advances and deposits maintained a high increase, and the deposit-to-loan ratio declined marginally. Bank of Changsha announced on September 21, 2023 that its total assets had exceeded trillion yuan as of August 31, making it the first trillion yuan commercial bank in Hunan Province and the eighth trillion-level commercial bank in A-shares. At the end of 2023, Bank of Changsha had total assets of 1.02 trillion yuan (YoY +12.74%), which is inseparable from its high loan growth rate. The loan balance at the end of 2023 was 488.391 billion yuan, a year-on-year increase of 14.64%. Of these, Q4 single-quarter loans only increased by 318 million yuan, mainly due to pre-2023 credit investment. Q1 has already invested 50% of the full year, and Q2 has already invested 33%. Bank of Changsha has deep administrative and financial roots, and political credit loans have been developing quite well in recent years. Furthermore, the debt-side advantage continued to show. The deposit balance at the end of 2023 was 658.857 billion yuan, a year-on-year increase of 13.86%; the deposit-to-loan ratio was 74.13%, down 3 pcts from the end of the third quarter of 2023, mainly because the growth rate of deposits in the fourth quarter was higher than that of loans, and seasonal fluctuations in deposits were less than loans.

The non-performing rate has declined marginally, and the asset quality has been strengthened. In recent years, the Bank of Changsha has stepped up its efforts to dispose of non-performing loans. The non-performing rate remained flat for 5 consecutive quarters of 1.16% from 2022 Q3 to 2023Q3, while the non-performing rate fell marginally by 1BP to 1.15% at the end of 2023. We estimate that its non-performing loan balance fell marginally to 5.616 billion yuan. The provision coverage rate at the end of 2023 was 314.21%, up nearly 3 pcts from the end of Q3, and the provision safety pads are thicker. We believe that in recent years, Bank of Changsha has focused on the disposal of non-performing loans in stock and has seen initial results. Coupled with the fact that incremental risk is basically manageable, asset quality has entered a healthy stage of development with poor “double reduction in the amount ratio” and increased provision coverage.

Risk warning: Macroeconomic growth is declining, regulatory policies are being tightened, corporate transformation falls short of expectations, etc.