Matters:
On March 27, ICBC released its 2023 annual report. It achieved annual revenue of 843 billion yuan, a year-on-year decrease of 3.7%, and realized net profit to mother of 364 billion yuan, an increase of 0.8% over the previous year. The annualized weighted average ROE was 10.66%, down 0.79 percentage points from the same period last year. Total assets at the end of 2023 were 44.7 trillion yuan, up 12.8% from the end of the previous year. Among them, loans increased 12.4% from the end of the previous year, and deposits increased 12.2% from the end of the previous year. The company's profit distribution plan for 2023 is: 3,064 yuan (tax included) for every 10 shares, with a dividend rate of 31.3%.
Ping An's point of view:
Narrowing interest spreads dragged down revenue, and other non-interest income performed well. ICBC's full-year revenue for 2023 was negative by 3.73% year on year (vs -3.55%, 23Q1-3). The narrowing of interest spreads can be seen as a drag on revenue. Net interest income for the year (accounting for 77.7% of revenue) was negative by 5.33% year on year, and the negative growth gap was further increased by 0.61 percentage points from the previous three quarters, mainly due to the reduction in existing mortgage interest rates and insufficient loan demand at the end of the 3rd quarter. In terms of non-interest income, due to the positive contribution of the bond market in the fourth quarter, other non-interest income increased 26.1% year on year (vs +16.8%, 23Q1-3), which in turn led to a slight recovery in the annual non-interest income growth rate. The year-on-year growth rate for the full year of '23 was up 2.30% (vs +0.59%, 23Q1-3). The downward trend in handling fees and commission revenue continued, with a negative year-on-year increase of 7.71% (vs -6.07%, 23Q1-3). Fluctuations in the capital market led to a slight weakening in residents' wealth management demand and the negative impact of bank channel fee cuts, leading to a negative 14.0% year-on-year increase in retail wealth management business revenue, which also fell 16.9% from the first half of the year. Judging from the profit level, against the backdrop of stable asset quality, provision backfeed became an important factor in smoothing profit fluctuations. Net profit to mother increased 0.79% year-on-year (vs +1.17%, 23Q1-3) for the whole year, and remained stable overall.
Loan pricing yields continued to decline, and scale expansion maintained the “head geese” effect. ICBC's net interest spread in 2023 was 1.61% (vs 1.67%, 23Q1-3), continuing the downward trend, mainly hampered by declining asset-side pricing levels. The company's annual asset yield was 3.45% (vs 3.56%, 23H1), and the annual loan yield was 3.81% (vs 3.95%, 23H1). The negative impact of interest rate adjustments on stock mortgage loans (accounting for 24.1% of total loans), insufficient loan demand, and interest rate cuts on asset-side pricing was significant.
Looking at debt-side costs, ICBC's annual interest-bearing debt cost ratio was 2.04%. Among them, the deposit cost ratio decreased by 1BP to 1.89% from the end of the half year. What can be seen is that the company's annual term deposit share increased 1.39 percentage points to 57.7% compared to the end of the half year. It is difficult and valuable to maintain stable debt-side costs under the trend of deposit regularization. It is expected that ICBC's overall deposit costs will still be in an advantageous position for listed banks. Taken together, we believe that ICBC's cost-side advantage is the foundation for it to have more room for asset manipulation. Although the upward flexibility of loan interest rates is slightly weak, and the pressure of repricing and interest rate cuts is expected to continue to put pressure on net interest spreads, ICBC's steady and low-risk management strategy can continue to maintain the stability of its asset quality and thus provide it with a foundation for steady operation.
In terms of scale, growth remained steady. At the end of '23, total assets increased 12.8% year on year, faster than the industry's asset growth rate of 1.73 percentage points, with loans growing 12.4% year on year.
Looking at the split loan structure, public loans are still an important reason supporting the company to maintain a relatively rapid growth rate. Public loans increased 16.8% year-on-year throughout the year, continuing to be faster than the average of the entire bank. Compared to retail loans, growth was slightly weak. At the end of '23, it increased by 5.09% year on year, mainly due to slow growth in mortgage loans due to poor recovery in demand in the real estate industry and early loan repayment, with a negative 2.23% year-on-year increase for the whole year. On the debt side, deposits increased by 12.2% year on year, continuing the relatively rapid growth rate.
The overall pressure on asset quality is manageable, and the defect rate in key industries has declined. ICBC's non-performing rate at the end of the year 23 remained flat at 1.36% at the end of the 3rd quarter. We estimate that the annualized bad generation rate in '23 fell by 7BP to 0.43% compared to the end of half a year. The absolute level is low, and the overall pressure on asset quality is manageable. It is worth noting that the non-performing loan ratio for key industries decreased compared to the end of the half year. The non-performing rate for loans to the public real estate industry at the end of the year 23 decreased by 1.31 percentage points to 5.37% compared to the end of the half year, and the non-performing rate for personal consumption loans at the end of the year 23 decreased by 0.50 percentage points to 1.34% compared to the end of the half year, and the pressure on asset quality in key industries was effectively controlled. In terms of forward-looking indicators, the attention rate at the end of 23 increased 6BP to 1.85% compared to the end of the year, and the overdue rate at the end of 23 rose 9BP to 1.27% from the end of the year. We expect it is mainly related to disturbances in the quality of small and micro assets after the deferred debt service policy expires, and the pressure on potential assets is relatively manageable. In terms of provision level, provision coverage and loan coverage at the end of '23 fell 2.25pct/4bp to 214%/2.90% compared to the 3rd quarter. Although it has declined, the absolute level is still quite adequate, and risk compensation capacity remains sufficient.
Investment advice: Steady management, outstanding high dividend attributes. As the largest commercial bank in China, ICBC's solid customer base, outstanding cost advantages, stable asset quality, and continuous improvement of comprehensive management capabilities are the foundation for crossing the cycle. With the gradual deepening of its “GBC+” strategy, the increase in internal capital circulation and customer stickiness is expected to provide it with stable business needs. Currently, in the context of risk-free interest rates continuing to decline, ICBC is a high dividend product that can stabilize dividends. The dividend premium ratio of the dividend rate is at an all-time high compared to the risk-free interest rate, and the dividend allocation value is worth paying attention to. Considering the concentrated release of repricing pressure since this year and the negative impact on interest spreads in the context of declining interest rates, we slightly lowered the company's 24-25 profit forecast and added a 26-year profit forecast. We expect the company's 24-26 EPS to be 1.03/1.07/1.12 yuan, respectively (the original 24-25 EPS was 1.04/1.08 yuan, respectively), corresponding to a year-on-year growth rate of 0.5%/4.0%/5.3% (the original 24-25 profit forecast was 1.3%/3.5%), March 27, 2024 The Japanese company's A share price corresponds to the company's 24-26 PB of 0.52x/0.49x/0.46x, respectively, maintaining a “recommended” rating.
Risk warning: 1) The economic downturn has caused the pressure on the asset quality of the industry to rise more than expected. 2) The decline in interest rates caused industry interest spreads to narrow beyond expectations. 3) Increased cash flow pressure on housing enterprises has triggered a rise in credit risk.