Incident: Bank of Changsha released its 2023 performance report, achieving operating income of 24.8 billion yuan, a year-on-year increase of 8.5%, and a net profit of 7.46 billion yuan, an increase of 9.6% over the previous year; the non-performing loan ratio was 1.15%, a decrease of 1 bps month-on-month, and provision coverage was 314%, an increase of 3 pcts over the previous year.

The performance remained stable at the level of the previous three quarters, and the annual revenue and profit growth rate increased slightly from month to month. Revenue/net profit growth rates for the full year of 2023 were 8.5%/9.6% respectively, up 0.1 pct/0.4 pct from the previous three quarters.

Among them, 4Q23 revenue/net profit increased 8.5%/10.9% year on year, and has rebounded significantly from the 3Q23 single-quarter performance low (3Q23 revenue/profit +1.6%/6.4% year on year, respectively). Considering that interest spreads in the fourth quarter are still under pressure, we expect mainly the decline in market interest rates in the fourth quarter, and higher bond investment income will drive the company's other non-interest income growth relatively well.

Scale growth slowed in the fourth quarter, mainly in preparation for successful marketing and project reserve work in 2024.

Total assets/loans increased by 0.2%/0.1% month-on-month in 4Q23. Mainly, credit growth reached 62.4 billion in the first three quarters, and the annual loan investment schedule exceeded 90%. In the fourth quarter, we were mainly engaged in marketing and project reserve work to get off to a good start in 2024. From a full-year perspective, total assets/loans in 2023 increased by 12.7%/14.6% compared to the beginning of the year, which is close to the 13.6%/15.3% increase in 2022 compared to the beginning of the year. 4Q23 deposits increased 4.1%/13.9% month-on-month compared to the beginning of the year, respectively. The deposit collection work was carried out in an orderly manner, and the annual deposit growth rate was basically in line with the loan growth rate.

Non-performing loans both declined month-on-month in the fourth quarter, and overall asset quality is still improving. At the end of 2023, the defect rate was 1.15%, down 1 bps month-on-month from the beginning of the year, provision coverage rate was 314%, and an increase of 3 pcts month-on-month compared to the beginning of the year. The company's provision coverage rate has remained above 300% in the past two years. Considering the company's business structure and risk situation, we believe that this level of provision is relatively stable and in line with the essence of the Bank of Changsha's business.

Investment advice: The company is rooted in Changsha, has the geographical advantage of county finance and a solid foundation brought about by deep local cultivation. The future scale is expected to continue to grow steadily above trillion dollars. The company's net profit growth rate for 2023-2025 is expected to be 9.6%/9.9%/11.4%, respectively. The current stock price corresponds to 0.47x23PB, maintaining a “buy” rating.

Risk warning: The economy is declining beyond expectations, financial concessions continue, real estate risks are exposed, and business transformation is blocked.