2023 results are in line with our expectations
China Merchants Bank released its 2023 performance report. The company's annual revenue decreased 1.6% year on year, net profit to mother increased 6.2% year on year, 4Q23 single quarter revenue decreased 1.4% year on year, and net profit to mother increased 5.2% year on year. In line with previous announcements, the results are in line with our expectations. At the industry level, demand for retail assets is currently weak, wealth management market activity is declining, deposits are showing a trend of regularization, and risks such as real estate and retail are exposed to a certain extent. Under macroeconomic pressure, we believe that CMB has provided a resilient performance questionnaire, which highlights the company's heritage as a “value bank.”
Development trends
The dividend rate was raised to 35%, which is the highest dividend target among bank stocks. The company's cash dividend amount in 2023 increased 13.5% year-on-year, and the growth rate was higher than the net profit performance of the mother. The dividend rate increased by 2pct to 35% from 33% in 2022, and the dividend rate according to dynamic estimates reached 6.3%. Looking ahead, we believe that the company's high dividend returns are expected to maintain strong sustainability, mainly due to: 1) strong capital safety pads and strong sustainability of endogenous capital supplements. By the end of the year, the company's core tier 1 capital adequacy ratio was 13.73%, an increase of 36 bps over 3Q23; 2) the company's articles of association clearly require a dividend rate of not less than 30%; 3) asset quality remains at the leading level of the industry, providing a certain guarantee for valuation safety.
The quality of assets is solid, and the generation rate of the company's poor caliber has declined. By the end of 4Q23, the company's bad loan ratio had decreased by 1 bps to 0.95%; the share of concerned loans had increased by 9 bps to 1.10% month-on-month, mainly due to an increase in the interest rate of retail loans such as credit cards; the share of overdue loans increased by 1 bps to 1.26% month-on-month, with loans overdue for 90 days or more falling 13 bps to 0.70% month-on-month; in the real estate sector, the non-performing ratio of loans to public real estate decreased by 5 bps to 5.26% month-on-month, and the mortgage non-performing ratio increased by 2 bps to 0.37% compared to the end of 1H23. In terms of bad generation, under the company's caliber, the non-performing loan generation rate in 2023 decreased by 12 bps to 1.03% year on year, the same level as the previous three quarters; under the group's caliber, the annual net generation rate of non-performing loans increased slightly by 2 bps to 0.85% year on year. In addition, the company's generous provision balance provided room for countercyclical adjustment. At the end of 4Q23, the company's provision coverage rate decreased by 8.2 pct to 437.7% month-on-month, and loans decreased by 13 bps to 4.14% month-on-month.
Actively promote the construction of “Smart CMB” digital finance, and business empowerment can be expected. The company places more emphasis on fintech capabilities to empower customer operations and internal risk control operations, and maintain a high level of strategic investment. In 2023, information technology invested 14.1 billion yuan, accounting for 4.59% of current revenue, an increase of 8 bps over the previous year; by the end of the year, the Group had 106,000 R&D personnel, accounting for 9.14% of the total number of employees in the Group. In the future, the company's digital finance construction will evolve in the direction of “online, digitization, intelligence, platformization, and ecology”. We expect to improve the deep operating efficiency of the company's customers and consolidate risk management capabilities. (Text continued...) Profit forecasting and valuation
Maintain profit forecasts, valuations, and outperform industry ratings. Currently A shares are trading at 0.8x/0.7x2024E/2025E P/B, and H shares are trading at 0.7x/0.6x. Maintain A and H target prices of $38.99 (1.0x/0.9x 2024E/2025E P/B and 24.4% upside) and HK$35.35 (corresponding to 0.8x/0.7x 2024E/2025E P/B and 17.9% upside).
risks
Macroeconomic recovery fell short of expectations, real estate risk exposure exceeded expectations, and capital markets continued to weaken.