Key points of investment
ICBC's interest spread pressure slightly exceeded expectations in 2023, and profits grew steadily, maintaining a high dividend rate of 31.3%.
Overview of the data
ICBC 2023A revenue increased -3.7% year on year, down 0.2 pc from 2023Q1-3; net profit to mother increased 0.8% year on year, the same growth rate as 2023Q1-3. The defective rate at the end of 2023 was 1.36%, the same as the end of 2023Q3; the provision coverage rate was 214%, down 2.2 pc from the end of 2023Q3.
Steady growth in profits
ICBC 2023A revenue increased -3.7% year on year, down 0.2 pc from 2023Q1-3; net profit to mother increased 0.8% year on year, the same growth rate as 2023Q1-3. Revenue growth slowed slightly, mainly due to narrowing interest spreads, which dragged down interest income performance. Looking ahead, considering the repricing of loans and the high base of interest spreads, the 24Q1 revenue decline is expected to expand compared to 23A. As the interest spread base improves, the revenue growth rate is expected to rise steadily in subsequent quarters.
Interest spreads narrowed month-on-month
It is estimated that 23Q4's single-quarter interest spread was 1.42% (initial and end caliber, same below), down 12 bps from 23Q3, mainly affected by the slowdown in asset-side returns. ① The return on assets fell 16 bps to 3.21% month-on-month in the 23Q4 quarter. Judging that it was mainly affected by the decline in loan yields, the 23Q4 stock mortgage plus point reduction and the further decline in interest rates on new loans. In addition, the increase in the share of low-yield notes also further dragged down overall return on assets. The 23Q4 note discount increased 9.7% month-on-month, 8.6pc faster than the total loan amount. ② The debt cost ratio for the 23Q4 quarter improved by 4 bps to 2.00% month-on-month. The judgment may have benefited from the optimization of the deposit term structure and the reduction in deposit interest rates.
Stable asset quality
ICBC's bad performance is basically stable: ① Judging from the static indicators, the non-performing rate at the end of 23Q4 was 1.36%, which was flat from month to month. The attention rate and overdue rate for forward-looking indicators fluctuated slightly. At the end of 23Q4, the attention rate and overdue rate increased by 6 bps and 9 bps to 1.85% and 1.27%, respectively, from the end of 23Q2. ② Judging from dynamic indicators, it is estimated that the TTM failure generation rate in 2023 is slightly higher by 2 bps to 0.45% compared to 23Q3, which is at a low level. ICBC's provisions declined slightly, and the provision coverage rate at the end of 23Q4 was -2.2pc to 214% month-on-month.
Maintain 30% + dividend rate
According to ICBC's 2023 dividend plan, the dividend per share in 2023 was 0.31 yuan, slightly higher than in 2022. The increase in dividend per share matches the profit growth rate. ICBC maintained a high dividend rate of 31.3% in 2023, and the dividend ratio reached a high level of 5.72%.
Profit forecasting and valuation
ICBC's net profit is expected to increase by 0.28%/1.49%/5.52% year-on-year in 2024-2026, corresponding to BPS 10.22/10.91/11.66 yuan/share. The current price corresponds to 0.52/0.49/0.46 times the 2024-2026 PB valuation. The target price is 6.20 yuan/share, corresponding to 0.61 times PB in 24 years. The current price space is 16%, maintaining the “buy” rating.
Risk warning: The macroeconomic economy has stalled, and there has been a sharp outbreak of malaise.