Incidents:
On March 28, Industrial Bank released its 2023 annual report, achieving operating income of 210.8 billion yuan, a year-on-year decrease of 5.2%, and net profit to mother of 77.1 billion yuan, a year-on-year decrease of 15.6%. The year-on-year growth rates of 23Q4 revenue and net profit to mother were -3.9% and -37.9%, respectively. The weighted average return on net assets in 2023 was 10.64%, down 3.2pct year over year.
Comment:
Revenue growth was steady, and increased depreciation measures dragged down profit growth. The year-on-year growth rates of the company's revenue, profit before provision, and net profit to mother in 2023 were -5.2%, -6.1%, and -15.6%, respectively, with changes of 0.4, 1.6, and -6.1 pct from 1-3Q23, respectively. Among them, the year-on-year growth rates of net interest income and non-interest income were 0.8% and -16.6%, respectively, with changes of -0.3 and 0.4 pct from 1-3Q23, respectively. Dividing the year-on-year profit growth structure, scale expansion and income tax were the main contributors, driving performance growth rates of 10.9 and 7.7 pct, respectively. Judging from marginal changes, the main boosting factors include: scale expansion, cost, and income tax contributions, and narrowing of non-interest negative drag; the main drag factors include a marked increase in negative provision drag.
Investment in public loans still dominates, and loan investment in key areas has maintained a high increase. In 23Q4, the company added 265.9 billion dollars in interest-bearing assets in a single quarter, an increase of 48.2 billion dollars over the previous year; the balance of interest-bearing assets grew 9.6% year over year, up 0.3 pct from the end of the 3rd quarter. More specifically:
Looking at the investment structure of interest-bearing assets, the amount of new loans, financial investment, and interbank assets in a single quarter was 147 billion, -206 billion, and 133.6 billion respectively. Among them, loan growth remained flat, financial investment decreased by 82.8 billion yuan year on year, and interbank assets increased by 136 billion yuan year on year; loans, financial investment, and interbank asset balances grew by 9.6%, 5.6%, and 23.6%, respectively, from the end of the 3rd quarter.
Looking at the credit investment structure, in 23Q4, the company added 82.6 billion, 19.4 billion, and 45 billion dollars in a single quarter, respectively. Among them, public loans decreased by 42.4 billion yuan, retail loans increased by 21.6 billion yuan month-on-month, and bill discounts increased by 40.6 billion yuan year-on-year; public and retail loans grew 20.3% and 0.1% year-on-year, with year-on-year changes of -2.7 and 0 pct, respectively, from the end of 3Q. The company's 4Q credit investment is still dominated by the public sector, but the intensity is not as strong as in the same period last year, and the share of incremental notes has increased, reflecting that the demand for effective financing from micro players is still weak; from the retail side, the increase improved over the 3Q period, and is expected to be mainly supported by operating loans and consumer loans. Looking at sector segments, the “five new tracks” layout accelerated. The year-on-year growth rates of inclusive small and micro loans, science and technology innovation loans, auto finance loans, and park finance loans at the end of 23Q4 were 23.9%, 31.9%, 16.2%, 26.1%, and 27.4%, respectively, all higher than the 9.6% growth rate of total loans.
The absorption of interbank debt has increased, and the “regularization” phenomenon of deposits has abated somewhat. In 23Q4, the company added 236.3 billion yuan in interest-paying liabilities, up 61.8 billion yuan year on year, and the balance increased 0.5 pct to 10.2% year over year; judging from the debt structure, the new deposits, payables, and interbank liabilities in the 4Q quarter were -80.3 billion, -67.6 billion, and 384.2 billion respectively. Among them, deposits and payable bonds increased by 127.4 billion yuan and 1407 billion yuan, respectively; interbank debt increased by 329.8 billion yuan year-on-year; the year-on-year growth rates of deposits, bonds payable, and interbank liabilities were 8.11.1%, -11.1%, respectively, 24.3%, changes of -2.8, -12.2, and 13.8 pct, respectively, from the end of the 3rd quarter. Deposit growth was significantly weaker than in the same period last year. First, the 22Q4 wealth management redemption wave boosted the year-on-year retail deposit base; second, the company continued to reduce the pressure on high-cost corporate liabilities. The size of the company's new time deposits and current deposits in a single quarter was -147.8 billion yuan and 28.9 billion yuan respectively, a year-on-year decrease of 175.7 billion yuan and 12.8 billion dollars respectively; the growth rates of term deposits and current deposits were 7.7% and 3.8% respectively, down 6.9 and 0.8 pct respectively from the end of the 3Q period, and the characteristics of deposit regularization were mitigated.
Interest spreads in 2023 narrowed by 1 bps to 1.93% compared to the previous three quarters, mainly being dragged down by the asset side. In 2023, the disclosed value of the company's net interest spread was 1.93%, 1 bps narrower than 1-3Q23; when calculating the return on interest-bearing assets, the interest-paying debt cost ratios were 4.03% and 2.34%, respectively, down 3 bps and 1 bps from 1-3Q23, respectively. From the asset side, loan pricing is under downward pressure due to factors such as lower interest rates on stock mortgages and rolling repricing of stock loans; from the debt side, one is that the company continues to reduce pressure on high-cost debt, and the other is that the trend of deposit regularization has improved marginally, which also helps ease the pressure on debt costs.
Profit and loss from changes in fair value supported the strengthening of non-interest income. The share of non-interest income decreased by 4.2 pct to 30.5% compared to the same period last year. The year-on-year growth rate of the company's non-interest revenue in 2023 was -16.6%, up 0.5 pct from 1-3Q23. Among them, net handling fees and commission revenue grew at a year-on-year rate of -38.4%, down 8 pcts from 1-3Q23. The company's handling fee growth in the fourth quarter was weak, mainly affected by the drop in the scale of old financial management products and capital market fluctuations; the net other non-interest income growth rate was 14.1%, up 16.7pct from 1-3Q23, mainly supported by fair value changes in profit and loss (achieving net income of 4.1 billion yuan in 2023, loss of 600 million yuan in the same period last year), and interest rates in the 23Q4 bond market declined markedly, driving bond valuation earnings to grow better.
The non-performing loan ratio remained flat at 1.07%, and risk offsetting capacity was further improved. At the end of 23Q4, the balance of non-performing loans and loans of concern was 58.5 billion and 84.4 billion respectively, adding 1.4 billion and 3 billion dollars respectively in a single quarter; the non-performing loan ratio and concern rate were 1.07% and 1.55% respectively, changing 0 bps and 1 bp respectively from the end of the 3Q. The total ratio of non-performing loans plus concern loans was 2.62%, up 1 bps from the end of 3Q. Companies tend to be cautious in their risk classification, actively downgrading some projects that are not overdue but have potential risks to categories of concern, and promoting management institutions to speed up resolution and disposal. In terms of provisions, the company accrued credit impairment losses in a single quarter of 19.4 billion dollars, an increase of 11.4 billion dollars; 4Q single-quarter credit impairment loss/revenue was 39%, up 23.7 pcts from the same period of the previous year, and the provision increase was increased; the provision balance was 143.4 billion yuan, an increase of 7.7 billion dollars over the end of 3Q; the provision coverage rate was 245.2%, up 7.4 pcts from the end of 3Q. The loan ratio was 2.63%, up 8 bps from the end of 3Q.
There has been an increase in capital adequacy ratios at all levels. At the end of 23Q4, the company's core Tier 1, Tier 1, and total capital adequacy ratios were 9.76%/10.93%/14.13% respectively, up 29/29/35 bps from the end of 3Q; RWA grew by 8.4% year on year, down 3.5 pct from the end of 3Q. Along with the slowdown in RWA's year-on-year growth rate, the company's capital adequacy ratio at all levels increased.
Profit forecasting, valuation and ratings. Industrial Bank has clear strategic goals, adheres to the “light capital, light assets, and high efficiency” transformation direction, takes the “1234” strategy as the core main line, uses digital transformation as the growth engine, empowers the “F+G+B+C” ecosystem services to acquire customers, and firmly polish the three “Green Bank, Wealth Bank, and Investment Bank” business cards. The company's asset-side credit investment remains stable, the debt structure continues to be optimized, and the share of core deposits has increased to help maintain strong resilience in interest spreads. The company plans to pay a cash dividend of 10.4 yuan for every 10 shares in 2023, with a corresponding dividend ratio of 28%, an increase of 1 pct over the previous year; the dividend rate corresponding to the current stock price is 6.4%, which is higher than the average of listed banks. Considering that there is still a lot of pressure to narrow the NIM in the banking system in 2024, the company's 2024-2025 EPS forecast was lowered to 3.83 (-8.8%) /4.02 (-9%) yuan, and the 2026 EPS forecast was added to 4.15 yuan. The current stock price corresponds to the PB valuation 0.44/0.40/0.37 times, respectively, maintaining the “buy” rating.
Risk warning: The downward pressure on the economy is increasing, and credit tolerance falls short of expectations.