Credit growth is accelerating, and the strategy is progressing steadily
The company's net profit and operating income in 2023 were +1.2% and +2.3%, respectively. Compared with January-September, -1.2pct and +1.0pct, the 2023 ROE was -1.04pct to 10.85% year-on-year. The highlights of the annual report are the optimization of the loan structure and other non-interest recovery. Follow-up attention is paid to the trend in asset quality and cost to income ratio. In view of the pressure on the company's costs, we forecast EPS of 0.88/0.89/0.91 yuan in 2024-26, forecast a BVPS of 8.53 yuan in 24, corresponding to 0.56/0.44 times PB for A/H shares. A/H shares are comparable to the company's 24-year wind expectations of 0.56/0.41 times. The company's five major differentiated growth results were remarkable and should enjoy a certain valuation premium. We gave A/H shares a 24-year target PB0.70/0.60 times, and A/H shares had a target price of 5.97 yuan/5.54 HKD, maintaining a “holding/buying” rating.
Loans are expanding rapidly, and are deeply involved in Sannong Xiaowei
The growth rates of total assets, loans, and deposits at the end of 23 were +11.8%, +13.0%, and +9.8%, respectively, compared with -1.5pct, +0.9pct, and -0.2pct at the end of September. Q4. Investment in corporate bonds contracted month-on-month, driving the growth rate of total assets to slow down, and the loan scale maintained a relatively rapid expansion. Compared with Q3-1.1 pct, deposits and loans reached 58.4%. The share of new public/retail/notes in 23Q4 was 44%/52%/4%, respectively, and the credit structure was improved. Among them, agricultural and inclusive loans were +18.8% and 23.7%, respectively, and Sannong's small and micro expansion efforts continued. Net interest spread in 2023 was 2.01%, compared to Q3-4bp, mainly driven by the asset side. The yield on interest-bearing assets and loan yield in 2023 was -7 bps and -11 bps to 3.56% and 4.13%, respectively; the interest-bearing debt cost ratio and deposit cost ratio were the same as in January-June, and -1 bp to 1.57% and 1.53%, respectively.
Other non-interest improvements, costs need to be optimized
The narrowing decline in non-interest income led to a recovery in revenue. In 2023, non-interest income was -1.1% year-on-year, and the decline was 5.2 pcts narrower than in the previous three quarters, with fair value +114% year-on-year, mainly boosted by rising bond and fund valuations. Mid-year revenue in 2023 was -0.6%, and the growth rate was -1.0pct compared to January-September. Mid-year revenue accounted for -0.2pct to 8.2% of revenue year over year. Excluding the one-time factor of the transition to net worth financial products in '22, revenue was +12.1% year over year. The company's non-capital protected financial balance at the end of '23 has picked up, +3.8% from the end of June to $1302.3 billion. The cost-revenue ratio in 2023 is 64.8%, compared to +3.4pct. Mainly due to the rigidity of the cost side, it is expected that the cost-revenue ratio will be optimized as the intensive operation and management system reforms show results.
Asset quality fluctuates, maintaining dividend ratio
The company's non-performing loan ratio, attention rate, and provision coverage rate at the end of 2023 were 0.83%, 0.68%, and 348%, respectively, compared with +1bp, +7bp, and -16pct at the end of September. Among them, the defect rate for public and retail sales increased by 2 bps, 3 bps to 0.55% and 1.12%, respectively, compared to the end of June, and the defect rate for public real estate increased by 1.44 pct to 2.45% compared to the end of June. The Q4 bad generation rate was 0.39% compared to Q3-0.09pct, and the annualized credit cost was +0.03pct to 0.25% year over year, and credit costs remained low to feed back profits. The recharge rate at the end of 23 was 9.53%, +7 bps compared to the end of September. The company maintained a dividend ratio of 30%, a DPS of 0.261 yuan, and a dividend ratio of 5.48%.
Risk warning: Economic recovery fell short of expectations, and the deterioration in asset quality exceeded expectations.