2023 results are in line with our expectations
The company's net profit/profit before provision for 2023 was +2.3%/-2.3%/-1.8% YoY, 4Q23 net profit/pre-provision profit/operating income -0.3%/-1.3%/-3.5% YoY. The performance is in line with our expectations.
Development trends
Revenue and profit growth declined slightly. The year-on-year growth rate of the company's net profit/net profit before provision in 2023 decreased by 0.8 ppt, up 0.2 ppt, and decreased by 0.5 ppt from 1 to 3Q23. Affected by factors such as lower interest rates on existing mortgages, the company's net interest spread continued to decline in the fourth quarter. Net interest spread for the whole year fell 5 bps from the previous three quarters, net interest income fell 4.1% year on year, and the growth rate decreased by 1.1 ppt compared to the previous three quarters. The company's investment business continued to perform well in the fourth quarter. In 4Q23, when other non-interest income increased 91.9% year on year and handling fee revenue fell slightly by 1.8%, the single quarter's non-interest income increased 19.1% year on year, contributing to revenue performance.
The month-on-month decline in net profit growth compared to the previous three quarters was mainly due to the narrowing of the decline in provision growth.
Asset quality remains stable. At the end of 2023, the company's non-performing loan ratio was 1.37%, the same as at the end of the third quarter. The overdue loan ratio was 1.12%, down 1 bps from the end of the first half of the year. The provision coverage rate fell 3.5ppt to 239.9% from the end of the third quarter, and the overall asset quality index was stable. The company's non-performing real estate loan ratio at the end of 2023 was 5.64%, a slight increase from 4.76% at the end of June 2023. The non-performing ratio of loans in the business services sector associated with CITI platforms was 1.80%, a slight decrease from 1.85% at the end of June 2023. In response to risks in key areas such as changes in the real estate market and the debts of urban investment companies, the company carried out special stress tests. The results showed that the relevant risks were within an acceptable range under stressful situations.
The “three major strategies” continue to advance. The company continues to deepen the implementation of the three major strategies of housing leasing, inclusive finance, and fintech. In terms of housing rental, the company's housing rental loan balance at the end of 2023 exceeded 320 billion yuan, supporting the provision of more than 1 million rental units, bringing in more than 14 million new households for individual customers, and increasing the total financial volume of individual customers by more than 260 billion yuan. In terms of inclusive finance, at the end of 2023, the company's inclusive loan balance exceeded 3 trillion yuan, and the number of inclusive finance customers exceeded 3 million. The new “Small and Micro Express Loan” model product provided a total of 12.80 trillion yuan in loan support for 4.72 million inclusive customers. Fintech investment accounts for 3.25% of revenue and has maintained steady growth.
The capital is sufficient, and the level of dividends remains stable. At the end of 2023, the company's core Tier 1 capital adequacy ratio, and capital adequacy ratio were 13.15%/14.04%/17.95%, which is at a high level in the industry; the year-on-year decline was 0.54pp/0.36pp/0.47ppt respectively, all of which met regulatory requirements. The company's dividend rate remained at 30% in 2023. Based on the March 28 stock price calculation, the dividend ratio of the company's A shares/H shares in 2023 was 5.9%/9.3%. The dividend ratio is the highest in the four major banks, and the high dividend value is prominent.
Profit forecasting and valuation
The profit forecast for 2024/2025 remains unchanged. Considering the company's adjustment of revenue, we lowered our 2024 revenue forecast by 6.5% to $739.1 billion, and our 2025 revenue forecast by 7.0% to $735 billion, keeping our 2024/2025 profit forecast unchanged. The current A share price corresponds to 2024/2025 0.5 times/0.5 times P/B, and H shares correspond to 2024/2025 0.3 times/0.3 times P/B. Keeping the target price of A shares unchanged at 9.02 yuan, corresponding to 0.7 times the 2024 P/B and 0.7 times the 2025 P/B, there is 32.1% upside compared to the current stock price, maintaining the industry rating. Keeping the target price of H shares unchanged at HK$6.77, corresponding to 0.4 times the 2024 P/B and 0.4 times the 2025 P/B, there is 43.4% upside compared to the current share price, maintaining the outperforming industry rating.
risks
Macroeconomic uncertainty and the spread of risks in the real estate industry.