Societe Generale Bank's performance is expected to bottom out and operations are expected to improve. Under high dividends, undervaluation, low positions, and low expectations, the valuation is expected to recover.
Business is expected to bottom out
The 2023 annual report is expected to be a low performance point, and operating pressure is expected to improve from 2024.
(1) 2023 is expected to be a low performance: due to factors such as stock mortgage interest rate cuts and continued bad retail pressure, it is expected that the net profit growth rate of Societe Generale Bank will continue to bottom out in 2023. In 2023, the net profit of the stock bank fell 3.7% year on year, and the growth rate decreased by 1.8 pc compared to 2023Q1-3. Among them, stock banks that did not disclose annual report data estimate that net profit in 2023 fell 9.6% year on year, and the growth rate dropped sharply by 4.5 pc from month to month. In 2022, Societe Generale Bank's net profit accounted for 42% of the corresponding stock bank, which is highly representative. Therefore, we estimate that the annual growth rate of Societe Generale Bank's net profit to mother in 2023 will further bottom out from -9.5% in the first three quarters.
(2) Future operating pressure is expected to improve: ① Scale, strong credit investment momentum. Industrial Bank's credit investment momentum is at the top of the stock market. In particular, the growth rate of public loans is prominent. At the end of 23Q3, Industrial Bank loans increased 9.9% year-on-year, ranking the top two listed stock banks in terms of growth rate. Public loans increased 14.6% year over year at the end of 23H1, ranking first among listed stock banks in terms of growth rate. ② There is plenty of room for improvement in interest spreads and liabilities. In 23Q3, Industrial Bank's debt cost ratio for a single quarter was 2.32%, 10 bps higher than the average for standard banks. The debt cost gap was mainly due to high deposit costs. 23H1 Industrial Bank's deposit cost ratio is 2.26%, 18 bps higher than the average for standard banks, and there is plenty of room for improvement in a declining interest rate environment. ③ Non-interest, good return on investment. Industrial Bank's gold market has outstanding characteristics, fully benefiting from the 2024Q1 bond market, and investment income is expected to support profits. As of the close of March 25, 2024, the China Securities Full Debt Index rose 3.61% year on year, up 1.69pc from the year end of 2023. ④ Depreciation, pressure is expected to fall back to a high level.
Affected by weakening economic momentum and exposure to real estate and retail risks, the negative pressure generated by Societe Generale Bank remained high.
Since 2022, Societe Generale Bank has taken the initiative to step up bad disposal efforts and continue to absorb the burden of stocks. It is expected that starting in 2024, the pace of risk generation in Societe Generale Bank is expected to stabilize or even decline at a high level of depreciation pressure.
Special banks in the gold market
Industrial Bank's gold market has outstanding characteristics and is expected to benefit from the bullish bond market since 2023H2. ① On the investment side, Industrial Bank's financial investment scale is 3.4 trillion yuan, ranking first among stock banks; financial investment accounts for 34% of total assets, which is 3pc higher than the average of stock banks. ② On the revenue side, 23Q1-3 Industrial Bank's other non-interest income accounts for 18.3% of revenue, which is higher than the stock bank's average of 4.2pc, ranking in the top three stock banks.
High dividends undervalued
With high dividends, undervaluation, low expectations, and low holdings, Industrial Bank is expected to recover its valuation. ① High dividend: As of March 25, 2024, Industrial Bank 2023E's dividend rate is 6.33%, and the dividend is extremely cost-effective. At the same time, Industrial Bank is a constituent stock of the Shanghai and Shenzhen 300, Shanghai Stock Exchange 50, and the China Securities Dividend Index, benefiting from the incremental capital inflow brought about by the current round of the low dividend market; ② Undervaluation: As of March 25, 2024, Industrial Bank's 2024 PB valuation was 0.44x, which was deeply broken, fully reflecting the market's pessimistic expectations about the fundamentals of Industrial Bank; ③ Low holdings: At the end of 23Q4, active public funds and Beijing Capital held shares in circulation, accounting for only 4.6% and 0.2% of the free shares, respectively. Low rank.
Profit forecasting and valuation
Societe Generale Bank's net profit for 2023-2025 is expected to be -13.2%/+0.0%/+4.1% YoY, corresponding to BPS 34.21/36.79/39.53 yuan. The current price corresponds to 0.48/0.44/0.41 times PB. Industrial Bank was given a target valuation of 0.55x PB in 2024, target price of 20.33 yuan/share, current price space 25%, and maintain a “buy” rating.
Risk warning: The macroeconomic economy has stalled, and the bad situation has been greatly exposed.