2023 results are in line with our expectations

Minsheng Bank announced its 2023 results. The company's annual revenue decreased by 1.2% year on year. Among them, 4Q23 revenue achieved a positive increase of 1.9%; net profit to mother increased 1.6% year on year; 4Q23 increased 50.6% year on year under a low base. The results were in line with our expectations. Looking at the horizontal comparison, under pressure from the industry, the company's revenue and profit growth rate both showed good resilience, and the growth rate performance was superior to that of comparable peers.

Development trends

Focus 1: At what stage is Minsheng Bank's asset quality cleared? Over the past three years, the company has continued to strengthen the concept that “compliant management is core competitiveness” and has strengthened its quality in the field of risk control. Benefiting from this, the company's stock risk was effectively improved: as of the end of 4Q23, the company's loan non-performing ratio was 1.48%, down 7 bps month-on-month and 20 bps from the beginning of the year; the loan attention rate decreased by 19 bps to 2.70% throughout the year.

By industry, 2H23's manufacturing and real estate loan non-performing rates decreased by 50 bp/21 bps to 1.29%/4.92%, respectively. Adding the risk side, we estimated that the net generation rate of non-performing loans for the year was 1.06%, down 41 bp/20 bps from 21/22, respectively, showing a downward trend year by year. We believe this reflects the company's more prudent risk appetite in the field of credit investment and provides more security guarantees for asset quality.

By the end of the year, the company's loan provision coverage rate was 149.2%, up 6.7 pcts from the beginning of the year.

Focus 2: Has the net interest spread stabilized? The company's annual NIM was 1.46%, a year-on-year decrease of 14 bps, but compared to the 1H23 mid-year level, it was only 2 bps lower, and the decline narrowed significantly. On the asset pricing side, in 2023, the company promoted credit investment for upstream and downstream micro, small and medium-sized enterprises through strategic customers to optimize the loan structure and guarantee loan investment income on the premise of maintaining prudence; this also reflects the consolidation of the company's customer base and further improvement of the customer service system. On the debt cost side, the company's annual deposit/interest payment debt cost was 2.31%/2.43%, which is 2 bp/1bp lower than 1H23. Looking ahead, we expect NIM to maintain the resilience of leading industries in 2024, benefiting from factors such as deep customer base management and lower fixed deposit interest rates.

Focus 3: What other highlights are worth paying attention to in future development? 1) The momentum of digital transformation continues to increase. Under this trend, although the company's annual operating expenses increased slightly by 0.2% year on year, investment in information technology reached 5.99 billion yuan, an increase of 27% year on year, and the proportion of revenue increased to 4.6%. 2) The comprehensive upgrade of the Wealth customer service system is reflected in the continuous growth of the retail customer base/AUM, effective improvement of customer experience, and continuous enrichment of customer rights and product shelves. 3) Dividends have remained stable. The company's cash dividend ratio for FY2023 was 30%, and it has maintained a dividend level of 30% or more for 6 consecutive years.

Profit forecasting and valuation

We have kept our profit forecasts largely unchanged. The Company's A shares are currently trading at 0.3x/0.3x 2024E/2025EP/B, and we maintain our target price of 5.05 yuan, corresponding to 0.4x/0.4x 2024E/2025E P/B and 24.4% growth; the company's H shares are currently trading at 0.2x/0.2x 2024E/2025E P/B, and we keep our target price unchanged at HK$3.73, corresponding to 0.3x/0.3x 2024E/2025E P/B and 37.6% room for growth. Maintaining the company's outperforming industry ratings.

risks

Macroeconomic recovery fell short of expectations, and real estate/retail risk exposure exceeded expectations.