Increase in dividend ratio and advance strategic transformation
Net profit, operating income, and PPOP in 2023 were +2.1%, -8.4%, and -9.1%, respectively. The growth rates were -6.1pct, -0.8pct, and -1.2pct in January-September. In 2023, a dividend of $0.72 per share is proposed, with an annual cash dividend ratio of 30% (2022:12%) and a dividend ratio of 7.03% (2024/3/14).
The company increases the dividend ratio and places importance on shareholder returns. In view of the decline in interest spreads, we forecast an EPS of 2.40/2.43/2.47 yuan for 24-26, and a BVPS forecast of 22.42 yuan for 24, corresponding to 0.46 times PB.
Comparatively, the company's 24-year Wind consistently predicted an average PB of 0.44 times. As a benchmark in retail business, the company should enjoy a certain valuation premium, giving a 24-year target PB of 0.60 times, a target price of 13.45 yuan, and maintaining a “buy” rating.
Debt cost optimization, marginal decline in interest spreads
The growth rates of total assets, loans, and deposits at the end of 23 were +5.0%, +2.4%, and +3.2%, respectively, compared with -1.2pct, -1.4pct, and -3.5pct at the end of September. Retail loans/ loans to public finances/ notes at the end of 23 accounted for 58%/36%/6%. Net interest spread for 2023 was 2.38%, compared to January-September-9 bps. The return on interest-bearing assets and the cost ratio of interest-bearing debt in 2023 were 4.58% and 2.27%, respectively, compared to January-September-9 bps and +1bp. The net interest spread for the Q4 single quarter decreased by 19 bps compared to Q3. In Q4, the yield on interest-bearing assets and loan yield declined by 19 bps and 25 bps compared to Q3. The yield on interest-bearing debt and deposit cost ratio in the single quarter remained flat and declined by 1 bps compared to Q3. The cumulative yield on retail loans in 2023 was -16 bps compared to the previous three quarters, mainly due to increased credit investment in low-risk businesses.
Investment returns are impressive, and revenue growth is declining
Non-interest income in 2023 was -6.1% year-on-year, and the growth rate was +5.2 pct compared to January-September. Intermediate business revenue was -2.6% year-on-year, and the growth rate was -5.0 pct compared to January-September. Revenue from wealth management fees was +2.1% year-on-year, and the growth rate was 8.3pct compared to January-September. In 2023, proxy personal insurance income increased 50.7% year over year. Other non-interest income in 2023 was -11.7% year-on-year, with a growth rate of +16.4pct compared to January-September, of which investment income was +21.2% year-on-year, and the growth rate was +17.1 pct compared to January-September, seizing market opportunities to boost bond investment. 23 The capital adequacy ratio and core Tier 1 capital adequacy ratio at the end of the year were 13.43% and 9.22%, respectively, compared with -0.09pct and -0.01pct at the end of September.
ROE and ROA in 2023 were -0.98pct and -0.04pct to 11.38% and 0.85%, respectively.
Credit costs are declining and asset quality is fluctuating
The non-performing loan ratio and provision coverage ratio at the end of 23 were 1.06% and 278%, respectively, compared to +2 bps and -5 pct at the end of September. The non-performing rate for public loans (including discounts) increased by 2 bps to 0.63% from the end of September, and the non-performing ratio for personal loans increased by 4 bps to 1.37% from the end of September. Among them, the non-performing rate for housing mortgage/credit card/consumer/operating loans was +2 bp/+15 bp/+9 bps, respectively. The share of concerned loans decreased by 1 bps to 1.75% compared to the end of September, and the hidden risk index was optimized. The credit cost in 2023 was 1.85%, -0.16pct; the Q4 annualized bad generation rate was +0.15pct to 1.95% month-on-month compared to Q3.
Risk warning: Economic recovery fell short of expectations, and the deterioration in asset quality exceeded expectations.