The company reduced provisions and released profits, and the growth rate of performance was stable. In 2023, we achieved operating income of 28 billion yuan, a year-on-year decrease of 3.6%; in 2023, we achieved net profit of 10.9 billion yuan, an increase of 6.1% over the previous year. Benefiting from significant improvements in asset quality, the company continued to reduce provisions to release profits, and asset impairment losses for the whole year decreased by 24.2% year-on-year.

The stock of bad pressure dropped drastically, and the bad generation rate fell back to a low level. After continuously increasing the identification and disposal of defects over the past few years, the company's stock of defects has basically been cleared. In 2023, the scale of the company's bad disposal dropped sharply by 40.4% year on year to 4.21 billion yuan. The calculated annual bad generation rate was 0.72%, a sharp drop of 57 bps over the previous year. At the end of the period, the company's non-performing loan ratio was 1.19%, down 3 bps from the beginning of the year; the attention rate was 1.14%, down 15 bps from the beginning of the year; and the overdue rate was 1.42%, up 9 bps from the beginning of the year. However, the determination of non-performing loans is strict, and there is a 78% deviation between loans overdue for 90 days or more and non-performing loans. Currently, the pressure on the company's stock of bad defects has dropped drastically, and the bad generation rate is low, so the company has reduced its reserve plan efforts. However, benefiting from poor improvements, the provision coverage rate at the end of the period was 367%, an increase of 9 percentage points from the beginning of the year, and the safety was enhanced.

The scale has steadily expanded, and the narrowing of net interest spreads has dragged down net interest income. Total assets at the end of the period were 1.44 trillion yuan, up 6.6% from the beginning of the year. Among them, the loan balance was 0.68 trillion yuan, up 7.0% from the beginning of the year, and the deposit balance was 0.90 trillion yuan, up 8.6% from the beginning of the year, and the asset scale expanded steadily. Driven by the narrowing of net interest spreads, net interest income for the full year of 2023 fell 7.5% year over year. Non-interest income increased 24.4% year over year, with net revenue from handling fees and commissions falling 6.4% year over year, and other net income increasing 60.0% year over year.

Asset-side returns fell sharply, and debt-side costs bucked the trend and fell by 10 bps. The average daily net interest spread disclosed in 2023 was 1.73%, down 24 bps year on year. Mainly dragged down by the decline in asset-side returns, there was a decline in debt-side costs. The yield on interest-bearing assets fell 30 bps to 3.67% in 2023, with loan yields falling 45 bps to 4.37% year over year. Under pressure from a sharp decline in asset-side returns, the company continued to strengthen debt cost control. Deposit costs narrowed by 9 bps to 1.88% year on year. At the same time, the company's interbank debt and bond issuance costs declined, leading to a year-on-year decrease of 10 bps to 2.03%, demonstrating the company's strong customer stickiness and excellent cost control capabilities.

Investment advice: The company's asset-side return is still under great downward pressure, but the company's customers are highly sticky and have excellent ability to control debt costs. The net interest margin decline is expected to be better than that of peers. At the same time, the company's poor stock has basically been cleared, and the provision coverage rate is high. It is expected that the performance will have the ability to achieve good growth. However, considering the strong operating pressure on the industry, we slightly lowered the net profit due to mother in 2024-2026 to 118/130/14.3 billion yuan (2024-2025 original forecast value of 125/14 billion yuan), corresponding to a year-on-year growth rate of 8.4%/9.6%/10.0%; diluted EPS was 1.02/1.12/1.24 yuan; PE corresponding to the current stock price is 4.2/3.8/3.5x, and Pb is 0.39/0.36/0.34x, maintaining the “increase in holdings” rating.

Risk warning: The weakening macroeconomic situation may adversely affect the quality of bank assets.