Incident: China Merchants Bank announced its 2023 annual report, achieving revenue of 339.1 billion yuan, yoy -1.64%; net profit to mother of 146.6 billion yuan, yoy +6.22%; weighted average ROE of 16.2%, yoy -0.84%; non-performing rate 0.95%, -1 bps compared to the end of the previous year; provision coverage rate of 438%, -13.1 pct year on year. On the same day, it was announced that it would pay a dividend of $1.972 per share in '23, with a cash dividend ratio of +2pct to 35% compared to '22.
Revenue pressure dropped slightly, net profit continued to grow, and the dividend ratio increased to 35%. China Merchants Bank's 2023/4Q23 revenue was 339.1 billion yuan/78.8 billion yuan, yoy -1.64%/-1.38%. 2023/4Q23 net profit to mother was 146.6 billion yuan/32.7 billion yuan, yoy +6.22%/+5.22%. On 3/25, the company plans to pay a cash dividend of 1.972 yuan (tax included) per share, +13.5% over the same period, increasing the annual cash dividend ratio to 35%. The ratio is +2pct compared to '22, and the static dividend rate rises to 6.29% at the closing price of 3/25. Net interest spread for 23 was 2.15%, -25bp/-4bp compared to 2022/9M23, respectively. Net interest income yoy -1.63%, non-interest net income yoy -1.65%, intermediate YOY -10.8% was the main drag. Investment income and profit and loss from changes in fair value yoy +34.5% were the main non-interest support items.
Microfinance and consumer loans are boosting the growth rate of retail loans. The size of corporate loans at the end of 23 was +10.7% compared to the end of the previous year. Among them, the size of real estate loans was -12.9% compared to the end of the previous year, accounting for 12.5% of corporate loans, and -3.39pct compared to the end of the previous year. The size of retail loans was +8.49% compared to the end of the previous year, and the growth rate was +2.67pct compared to 22 years. Mainly, the company increased its investment in high-quality small and micro loans and consumer loans. Personal housing/credit card/small micro/consumer loans were -0.27%/+5.81%/+19.1%/+49.1%, respectively, compared to the end of the previous year. The average yield of company/retail loans was 3.75% /5.02%, -10bp/-42bp year-on-year respectively; judging from the loan term structure, the average yield for short/medium- and long-term loans was 4.67%/4.04%, respectively, mainly due to the high yield and relatively high yield of credit card loans and consumer loans in short-term loans.
Deposit regularization continued, and the average cost rate stabilized in the fourth quarter. The deposit size at the end of 2023 was +8.22% compared to the end of the previous year. The size of individual and company current deposits declined. The size of individual/company time deposits was +48.6%/+20.8% compared to the beginning of '23, accounting for 20.4%/24.7% of total deposits, respectively, and +5.55pct/+2.57pct compared to the end of '22. The average cost rate for deposits in 23 was 1.62%, the same as +10bp in '22, the same as 3q23. The average cost ratio for RMB customer deposits was 1.56%, 4bp year on year. The increase in the overall cost ratio was mainly affected by the Federal Reserve's interest rate hike, and was due to the increase in the cost rate for deposits and disbursements in foreign currency and other financial institutions.
Other non-interest income was the support, and the mid-quarter decline narrowed. Retail AUM at the end of 23 was +9.88% compared to the end of the previous year, and the number of customers holding positions in retail wealth products was +19.1% compared to the end of the previous year. The scale of wealth management grew steadily. The company's net revenue from handling fees and commissions was -10.8%/-7.78% year-on-year. Excluding consignment insurance and settlement and settlement fee revenue +9.33%/2.93% year-on-year, all other fees declined, mainly affected by capital market conditions, and the decline in trading activity of funds, financial management, stocks and other products. Among other non-interest income, profit and loss from investment and fair value changes were +34.5%, which was the main increase in other non-interest income, mainly due to the increase in fair value of bond investments and non-commodity fund investments.
The scale of the increase in the real estate non-performing rate has declined, and provisions have remained high. At the end of '23, China Merchants Bank's non-performing loan ratio was 0.95%, -1/-1bp compared to the end of '22 and the end of 3Q23, respectively. Affected by the large risk exposure of some high-debt real estate customers and individual underperforming corporate customers, the company's non-performing loan amount was +3.44% compared to the end of the previous year, and the non-performing rate was 1.19%, -7 bps compared to the end of the previous year; the real estate non-performing loan ratio was 5.01%, compared to +1.02pct at the end of the previous year, and the scale of all real estate-related businesses was -13.9%, and subsequent risks are expected to be manageable. Among personal loans, the non-performing loan ratios for small and micro, housing, consumer, and credit cards were 0.61%/0.37%/1.09%/1.75%, respectively, compared to the end of '22, which is -3 bp /+2 bp/+1bp /- 2bp, respectively. At the end of 2023, the company's provision coverage rate was 438%, compared to -13.1pct/-8.16pct at the end of 22/3Q23, and the risk resilience was sufficient.
Investment advice: Maintain a “Recommended” rating. China Merchants Bank continues to promote the development of the four major sectors of “retail finance, corporate finance, investment banking and financial markets, wealth management and asset management”, forming a business pattern with distinctive characteristics and balanced collaborative development; the scale of assets continues to grow, wealth management capabilities continue to improve, and asset quality is steady. We forecast revenue for 24E/25E/26E to be 338.7 billion/346.7 billion yuan/359.5 billion yuan respectively, or -0.1%/+2.3%/+3.7 percent year-on-year, respectively; realized net profit to mother of 156 billion/ 166.3 billion yuan/177.7 billion yuan, respectively, and +6.4%/+6.9% year-on-year respectively. On March 25, 2024, the closing price was 31.35 yuan/share, and the PB corresponding to 24E/25E/26E was 0.76 /0.67 /0.59 times.
Risk warning: macroeconomic recovery falls short of expectations; industry policy changes drastically; corporate strategy progress falls short of expectations.