Incidents:
The Industrial and Commercial Bank released its 23rd annual report. In 23, it achieved revenue of 843,070 billion yuan, -3.73% year-on-year, a growth rate of -0.18 PCT compared to the previous three quarters; net profit to mother was 363,993 billion yuan, +0.79% year-on-year, and the growth rate was basically the same as in the previous three quarters.
Credit investment was strong, and the decline in asset-side returns dragged down overall interest spreads by -5.34% year-on-year, and net interest income for the full year of '23, a growth rate of -0.63 PCT compared to the previous three quarters. In terms of credit investment, as of the end of '23, ICBC's loan balance was 26.09 trillion yuan, +12.39% year over year. The growth rate was -0.15 PCT compared to the previous three quarters. The growth rate of credit investment was faster than the overall credit growth rate of financial institutions. In terms of investment direction, it is expected that credit will mainly be invested in manufacturing, infrastructure and other fields. By the end of '23, ICBC's loan balances in the manufacturing and infrastructure sectors were +20.60% and +18.43%, respectively. Looking at net interest spreads, ICBC's net interest spread for the full year of '23 was 1.61%, compared to -6BP at the end of the third quarter. Among them, the return on the asset side was 3.45%, compared to -7BP at the end of the previous three quarters. The main reason: 1) Competition for public sector projects was fierce, and the yield on public credit for the whole year was -13BP compared to the first half of the year. 2) Stock mortgage interest rate adjustments gradually became apparent. The annual retail credit yield was -19BP compared to the first half of the year. The average cost ratio on the debt side was 2.04%, which was basically the same as in the first half of the year, and the overall cost of debt remained stable.
The financial management business dragged down overall revenue, and AUM maintained a high growth rate
Net income from processing fees and commissions for the full year of '23 was -7.71% year-on-year. The growth rate was -1.64PCT compared to the previous three quarters, mainly hampered by financial management. In '23, ICBC's personal finance, private banking, and public finance fee revenue was 225.82 billion yuan and 11.77 billion yuan respectively, -13.98% and -16.95% year-on-year respectively. The main categories were:
1) Weak capital market performance has led to a decline in the company's financial management scale. As of the end of '23, ICBC's non-capital protected wealth management balance was 1.86 trillion yuan, -13.38% year-on-year. 2) Rate reduction. The average rates for ICBC's personal finance and public finance business in '23 were 1.13% and 0.65%, respectively, compared to -30BP and -5BP in the first half of the year. From the perspective of the customer base, ICBC, as a major state-owned bank, still has significant customer base advantages. By the end of '23, the number of retail customers and AUM of ICBC reached 740 million households and 20.71 trillion yuan respectively, +2.78% and +10.99% year-on-year respectively.
Asset quality is under slight pressure
From a static perspective, as of the end of '23, ICBC's non-performing rate was 1.36%, the same as at the end of the third quarter. The attention rate and overdue rate were 1.85% and 1.27% respectively, +6BP and +9BP, respectively, compared to mid-year. Asset quality is under slight pressure, mainly due to: 1) Pressure on asset quality in the public construction industry. By the end of '23, the construction industry's defect rate was 3.25%, +122 BP compared to mid-year. It is expected to be mainly due to real estate chain risk exposure. 2) Retail-side credit cards are under pressure. By the end of '23, the credit card defect rate was 2.45%, +18BP compared to mid-year. Looking at the dynamics, ICBC's bad generation rate was 0.45%. Compared with -7BP in the first half of the year, the negative generation pressure has decreased somewhat. In terms of provisions, as of the end of '23, ICBC's provision coverage rate was 213.97%, compared to -2.25PCT at the end of the third quarter.
Profit Forecasts, Valuations, and Ratings
Considering that the impact of the current LPR reduction still exists, we expect the company's revenue for 2024-2026 to be 8484.39, 8743.84, and 925,712 billion yuan, respectively, with year-on-year growth rates of +0.64%, +3.06%, and +5.87%, respectively, and a 3-year CAGR of 3.17%. Net profit attributable to mother was 3802.74, 4046.58, and 427.421 billion yuan respectively. The year-on-year growth rates were +4.47%, +6.41%, and +5.63%, respectively. The 3-year CAGR was 5.50%.
In view of the company's strong customer base and network layout, with reference to comparable company valuations, we gave the company 0.65 times PB for 24 years, with a target price of 6.67 yuan, maintaining a “buy” rating.
Risk warning: Steady growth falls short of expectations, and asset quality deteriorates.