The 2023 results were slightly better than we expected.
The company's 2023 net profit/profit before provision was +4.2%/-1.9%/+0.03% YoY, 4Q23 net profit/pre-provision profit/operating income +1.1%/+3.8%/+1.9% YoY. The performance was slightly better than our expectations, mainly due to the good performance of other non-interest income in the fourth quarter.
Development trends
The profit growth rate was the fastest among the six major banks, and revenue achieved positive growth. In 2023, the company's net profit increased 4.2% year on year. The growth rate was the fastest among the six major banks. Revenue achieved positive year-on-year growth, and was also at a high level among major banks.
The company's net interest spread for the full year of 2023 was 1.60%, down 2 bps from the previous three quarters. It was mainly affected by the reduction in stock mortgage interest rates, but the decline was narrower than in the previous three quarters. The company's investment business performed well in the fourth quarter. Other non-interest income increased 284.8% year-on-year in a single quarter. It is speculated to be related to the increase in the fair value of financial investment, compounded by the impact of the low base for the same period last year.
County businesses have achieved high-quality development. The company focuses on financial services in the “three rural” counties and continues to deepen the county strategy. The company's county loans increased by 1.45 trillion yuan in 2023, accounting for more than 50% of the total loan increase. Among them, county urbanization loan balance was 1.43 trillion yuan, up 22.7% year on year, county manufacturing loan balance was 1.09 trillion yuan, up 23.9% year on year, county corporate loan balance was 1.63 trillion yuan, up 58.6% year on year, and county personal loan balance was 3336.7 billion yuan, up 12.8% year on year. While the scale has maintained rapid growth, the profitability of the county's business has remained stable. The average yield on county loans is 3.62%, the average interest rate on deposits is 1.42%, the interest spread is higher than the bank average, and the loan non-performing rate is 1.24%, which is lower than the bank average. The revenue share of the county business increased by 2ppt to 47.7% compared to 2022, and the revenue growth rate was 4ppt higher than the average growth rate of the entire bank. Agricultural Bank management said during the performance meeting that in 2024, county loans are planned to increase by more than 1.3 trillion yuan, accounting for an increase of about 50%. We expect the contribution of the county business to the entire bank will continue to increase.
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Profit forecasting and valuation
Profit forecast for 2024/2025 was slightly raised. Affected by the company's adjustments in revenue caliber, we lowered our 2024 revenue forecast by 5.0% to $672.1 billion, and our 2025 revenue forecast by 6.4% to $662.7 billion. Considering that the company's provisions are sufficient and credit cost savings help improve performance, we slightly raised our 2024 profit forecast by 2.8% to $274.3 billion, and slightly raised our 2025 profit forecast by 2.7% to $279.8 billion. The current A share price corresponds to 2024/2025 0.6 times/0.5 times P/B, and H shares correspond to 2024/2025 0.4 times/0.4 times P/B. The target price for A shares remains unchanged at 5.14 yuan, corresponding to 0.7 times the 2024 P/B and 0.6 times the 2025 P/B. There is 23.2% upside compared to the current stock price, maintaining the industry rating. Keeping the target price of H shares unchanged at HK$4.40, corresponding to 0.5 times the 2024 P/B and 0.5 times the 2025 P/B, there is 33.2% upside compared to the current share price, maintaining the outperforming industry rating.
risks
Economic recovery falls short of expectations, and real estate and local financing platforms are at risk.