Key points of investment
CMB raised its dividend ratio to 35% in '23, with a dividend rate of 6.29%, which is 67 bps higher than the dividend rate predicted by the four major banks.
Overview of the data
China Merchants Bank 23A's net profit increased 6.2% year on year, slightly down 0.3 pc from 23Q1-3; revenue fell 1.6% year on year, and the growth rate increased slightly by 0.1 pc from month to month. China Merchants Bank's defect rate at the end of 23A decreased by 1 bp to 0.95% from the end of 23Q3, and the provision coverage rate decreased by 8pc to 438% compared to the end of 23Q3.
Non-interest-based revenue
CMB 23A's net profit increased 6.2% year over year, the growth rate decreased slightly by 0.3 pc from 23Q1-3, revenue decreased 1.6% year over year, and the decline narrowed slightly by 0.1 pc from month to month. Looking at the driving factors: Non-interest supports revenue, and impairment supports profit. (1) Non-interest: Under the influence of the low base in the same period in 2022, 23A CMB's other non-interest rate increased 25% year-on-year, and the growth rate increased by 10 pc compared to 23Q1-3, supporting revenue growth against the trend. (2) Impairment: 23A CMB impairment losses decreased by 28% year-on-year, and the decline increased by 7 pc compared to 23Q1-3, supporting profit growth. Among them, loan impairment losses increased 3% year on year, and the growth rate fell sharply by 19pc from month to month; non-credit impairment continued to make up 5.2 billion yuan to support profits. Looking ahead, due to pressure to narrow interest spreads in the industry, it is expected that CMB's revenue will still face negative upward pressure in 2024, but with sufficient provision support, profits are expected to maintain positive growth.
Interest spreads fell month-on-month
CMB's 23Q4 net interest spread for a single quarter (average daily caliber, same below) fell 7 bps to 2.04% from 23Q3. Specifically: (1) In 23Q4, the return on the asset side fell 4 bps to 3.68% month-on-month, mainly due to the impact of interest rate cuts on existing mortgages, loan interest rates fell 16 bps to 4.08% month-on-month. (2) In 23Q4, the debt-side cost ratio rose slightly by 2 bp to 1.75% month-on-month, mainly due to interbank debt interest rates (including loans from the central bank) rebounding 21 bps to 2.22% month-on-month, judging that it is related to foreign currency interest rate hikes, which led to an increase in foreign currency interbank debt costs; however, considering the sharp rise in interbank asset interest rates of 87 bps month-on-month, the interbank business actually played a positive supporting role in CMB's interest spreads.
Fluctuating retail risk
CMB's defect rate, attention rate, and overdue rate at the end of 23Q4 were -1 bp, +9 bp, and +1 bp to 0.95%, 1.10%, and 1.26%, respectively. The non-performing rate and overdue rate were basically stable month-on-month. Fluctuations in interest rates are mainly due to the current rise in retail loans, especially consumer loans and credit cards, in the risk industry.
The parent bank's attention rate at the end of Caliber 23Q4 increased 12 bps to 1.08%. Among them, retail loan attention rate rebounded 15 bps month-on-month. Among retail loans, the attention rate for credit cards, consumer loans, and mortgages increased 34 bps, 12 bps, and 10 bps, respectively. Looking ahead, we still need to continue to pay attention to the interpretation of retail risk.
Increased dividend ratio
CMB announced a dividend ratio of 35% in 2023, an increase of 2pc over 2022; corresponding to the 2023 dividend rate of 6.29% (data as of March 25, 2024), 67 bps higher than the average dividend rate predicted by the four major banks. The reason behind the increase in the dividend ratio is closely related to CMB's strong ability to supplement endogenous capital. According to simple estimates, CMB's 2023AROE level is 16.2%. Based on a 35% dividend rate, it can support the RWA growth rate of 10.5% when the core Tier 1 capital adequacy ratio does not decline, while the 2023A CMB total assets and RWA growth rates are 9% and 13%.
Profit forecasting and valuation
CMB raised its dividend ratio to 35% in 2023, corresponding to a dividend rate of 6.29%, 67 bps higher than the average of the four major banks.
Net profit due to mother is expected to increase 1.94%/6.01%/7.09% year-on-year in 2024-2026, corresponding to BPS40.49/44.58/48.99 yuan. The current price corresponds to 0.77 times the 2024 PB valuation. The target price is 36.63 yuan/share, corresponding to 0.90 times the 2024 PB, and the current price space is 17%, maintaining the “buy” rating.
Risk warning: The macroeconomic economy has stalled, and the bad situation has been greatly exposed.