2023 results are in line with our expectations

The company's 2023 operating income/profit before provision was +6.4%/3.3%/4.1% YoY, and the fourth quarter operating income/pre-provision profit/net profit was +4.5%/+0.8%/+5.7% YoY, in line with our expectations.

Development trends

The year-on-year revenue growth rate was the top of the six major banks. The year-on-year growth rate of the company's net profit/net profit before provision in 2023 was 1-3Q23 +0.5pp/ -0.7pp/ -0.6ppt, respectively, and the year-on-year growth rate of net profit/net profit before provision for a single quarter was 3Q23 +1.7ppt /+0.2pp/+1.1ppt, respectively. The annual revenue ranked first in the market. Specifically, 1) Net interest income increased 1.6% year over year, down 1.6ppt from 1-3Q23, mainly due to declining interest spreads. 2) Net handling fee revenue increased 5.3% year over year, and other non-interest income increased 51.3% year over year, contributing positively to revenue growth of 4.3ppt, mainly due to revenue growth from other businesses such as precious metals sales, premiums, and aircraft leasing. 3) The company's asset impairment losses increased 2.5% year on year, down 7.7ppt from the 1st to 3Q23, and positively contributed 0.8ppt to net profit.

Loan investment continues to be optimized. The year-on-year growth rate of the company's total assets/loan balance in 2023 was 12.2%/13.7%, respectively, up 1.3 pt/0.3ppt from the previous three quarters. Looking at key areas, private enterprise loan balances increased by more than 27% year on year. Inclusive loans grew by more than 40% year on year; strategic emerging industry loans/manufacturing loans/technology finance loan balances increased by 74.4%/28.1%/31.0% year on year respectively, all higher than the average growth rate of corporate loans.

The net interest spread declined slightly. The company's net interest spread in 2023 was 1.59%, down 5 bp/7 bps from 1 to 3Q23/2022. The year-on-year decline was the fewest of the six major banks. Mainly due to higher foreign currency interest rates boosting returns on foreign currency assets, the decline in domestic RMB asset returns dragged down interest spreads. The return on interest-bearing assets was 3.58%, up 0.18ppt from 1H23, the cost ratio of interest-paying debt was 2.18%, and up 0.41ppt from 1H23. The decline in interest spreads was less than that of peers, mainly due to a further increase in the share of deposits and loans in assets and liabilities and an improvement in foreign currency interest spreads.

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Profit forecasting and valuation

Considering the company's revenue and profit caliber adjustments, we lowered our 2024/2025 net profit forecast by 1.0%/0.4% to 234.1 billion yuan/246 billion yuan. The current A share price corresponds to 2024/2025 0.5 times/0.5 times P/B, and H shares correspond to 2024/2025 0.3 times/0.3 times P/B. Keep the target price of A shares unchanged at 5.64 yuan, corresponding to 0.7 times the 2024 P/B and 0.6 times the 2025 P/B. There is 28.8% upside compared to the current stock price, maintaining the industry rating. Keeping the target price of H shares unchanged at HK$3.90, corresponding to 0.4 times the 2024 P/B and 0.4 times the 2025 P/B, there is 20.8% upside compared to the current share price, maintaining the outperforming industry rating.

risks

Domestic and foreign macroeconomic uncertainty; real estate and local financing platform risks.