Increased credit investment and increased provision plans
Everbright Bank's net profit, operating income, and PPOP in 2023 were -9.0%, -3.9%, and -4.4%, respectively. The growth rates were -12.0pct, +0.4pct, and +2.3pct in January-September. The decline in net profit growth is mainly due to the Group's increased provision and improvement efforts to consolidate asset quality. 2023 cash dividend ratio 28.41% (2022:28.07%), dividend rate 5.15% (2024/3/27). In view of the slowdown in asset expansion, we forecast EPS of 0.62/0.64/0.66 yuan for 2024-26, and a BVPS forecast value of 8.10 yuan for 24, corresponding to 0.41 times PB. Comparatively, the company's 24-year Wind unanimously predicted an average PB value of 0.47 times. The company promoted a collaborative wealth ecosystem, and strategic results are expected to show. It should enjoy a certain valuation premium. We gave the 24-year target PB 0.52 times and a target price of 4.21 yuan, maintaining a “buy” rating.
Increased credit investment and optimization of deposit costs
The growth rates of total assets, loans, and deposits at the end of 23 were +7.5%, +6.0%, and +4.5%, respectively, compared with -1.6 pct, +0.5 pct, and +1.9 pct at the end of September. The balance of public loans at the end of 23 accounted for +0.9pct to 57.2% of total loans at the end of 23H1. Green loans, inclusive small and micro enterprise loans, and agricultural loans were +57.44%, +24.18%, and +30.45% respectively at the end of '22, increasing their support for the real economy. The net interest spread in '23 was down 8 bps from 23H1 to 1.74%, mainly dragged down by the decline in asset-side pricing. The yield on 23-year interest-bearing assets was -8 bps to 4.07% in the first half of the year, with a loan yield of -12 bps compared to the first half of the year. The 23-year interest-bearing debt cost ratio is -1 bps compared to the first half of the year, and the deposit cost ratio is -3 bps compared to the first half of the year, optimizing deposit costs.
Revenue growth is under pressure, and other non-interest growth
Mid-year revenue was -11.4% year-on-year, the same as 23Q1-3. The decline in revenue was mainly due to settlement and clearing fees/ financial service fees/ bank card service fees -11.44%/-14.17%, respectively. The company insisted on lightweight transformation and increased the development of the agency insurance business. Agency insurance revenue was +43.66% year over year. The lightweight transformation accelerated, with AUM reaching 2.73 trillion yuan at the end of '23, +12.42% compared to the end of '22. Wealth and private banking customers surpassed 1.5 million, and interbank financial transaction volume (GMV) was +18.14% year over year. The company gives full play to the collaborative advantages of commercial bank+investment bank+asset management+transaction, and is expected to further increase revenue. Other non-interest income was +29.1% year-on-year in '23. The growth rate was 19.3pct higher than 23Q1-3, mainly boosted by changes in fair value and net exchange earnings.
Asset quality is improving, and provision plans are being increased
The 23-year defect rate was 1.25%, compared to the end of September -10bp, the provision coverage rate was 181%, and +6pct compared to the end of September.
Asset quality is improving, and risk resilience is being strengthened. A total of $53.714 billion in non-performing loans were disposed of during the reporting period, an increase of 4.678 billion yuan over the previous year. At the same time, provision increases were made, and credit impairment losses were +2.92% year-on-year. The 23Q4 annualized bad generation rate was +0.36pct to 1.82% month-on-month compared to 23Q3, and the 23Q4 annualized credit cost was +0.65pct year-on-year to 1.76%. The capital adequacy ratio and core Tier 1 capital adequacy ratio at the end of September were +0.08pct and +0.07pct at the end of September to 13.50% and 9.18%, respectively.
Risk warning: Economic recovery fell short of expectations, and the deterioration in asset quality exceeded expectations.