Incidents:
On March 28, China Construction Bank released its 2023 annual report. The company achieved annual revenue of 769.7 billion yuan, a year-on-year growth rate of -1.8%, and net profit to mother of 332.7 billion yuan, a year-on-year growth rate of 2.4%. The annualized weighted average return on net assets (ROAE) was 11.56%, a year-on-year decrease of 0.7 pct.
Comment:
The revenue growth rate declined slightly, and profit growth was relatively stable. The year-on-year growth rates of the company's annual revenue, profit before provision, and net profit to mother were -1.8%, -2.2%, and 2.4%, respectively, with changes of -0.5, 0.2, and -0.7 pct, respectively, from the previous three quarters.
Among them, the 4Q single quarter revenue and net profit growth rates were -3.5% and 0.3% respectively, down 0.8 and 2.3 pct from the previous quarter, respectively. The year-on-year growth rates of net interest income and non-interest income for the year were -4.1% and 8.9%, respectively, with changes of -1.1 and 2.5 pct, respectively, from the previous three quarters. Looking at the split profit growth rate: (1) Net interest income “is difficult to resist the decline in volume”. The scale's driving profit growth rate is basically the same as 1-3Q, and interest spreads have dragged down performance to a greater extent. (2) The contribution of non-interest income increased marginally, the scale of processing fees and commission income decreased slightly year on year, and the growth rate of net other non-interest income achieved a high year-on-year increase on a lower basis in the previous period. (3) The impact of provisions on performance has weakened marginally, and the 4Q company still maintains a certain level of calculation.
The pace of credit investment has slowed slightly, and the “three major strategies” are progressing steadily. At the end of 2023, the year-on-year growth rates of CCB's total assets, interest-bearing assets, and loans were 10.8%, 10.8%, and 12.6%, respectively. The growth rates changed by 0.4, 0.1, and -0.5 pct respectively from the end of the 3Q period, and the scale continued to expand steadily. In terms of loans, the fourth quarter added 209.4 billion yuan, a year-on-year decrease of 69.8 billion yuan, and the share of interest-bearing assets decreased by 0.6 pct to 62% from the end of the third quarter. At the structural level, public loans, retail sales, and notes were added to -21, 438, and 167.7 billion dollars respectively during the 4Q quarter, with year-on-year changes of -86, 165, and -76.6 billion, respectively. Credit investment during the year depended on forward strength. Specifically: (1) Housing leasing and other advantageous businesses continued to grow rapidly. During the 4Q quarter, corporate housing rental loans, inclusive finance, and green loans increased by 83.3 billion yuan, 691.2 billion dollars, and 1.13 trillion dollars respectively. The year-on-year growth rates were 34.4%, 29.4%, and 41.2%, all higher than the average of the entire bank, and the “three major strategies” progressed steadily. The company's financial business revenue for the year was 241.8 billion yuan, a slight decrease over the previous year, contributing 31.4% to the bank's revenue. (2) Retail credit grew steadily. Personal business loans increased by 362.1 billion yuan throughout the year, an increase of 173.3 billion over the previous year, which is the main support for retail growth. The annual retail finance business revenue was 381.4 billion yuan (YoY +4.3%), accounting for 49.6% of the bank's revenue, an increase of 3 pcts over 2022.
The growth rate of deposits has slowed, and the trend of regularization continues. The year-on-year growth rates of the company's total liabilities, interest-paying liabilities, and deposits at the end of 2023 were 10.8%, 11.5%, and 10.6%, respectively, with changes of 0.4, 1.4, and -1.9 pct from the end of the 3Q period, respectively. In the fourth quarter, deposits decreased by 238.3 billion yuan, a year-on-year decrease of 442.6 billion yuan. The share of interest-paying liabilities decreased by 2.4 pct to 81% compared to the end of the third quarter. Looking at the term structure, 4Q single-quarter term deposits decreased by 62.6 billion yuan, a year-on-year decrease of 15.8 billion dollars; current periods decreased by 175.6 billion yuan, a year-on-year decrease of 288.7 billion yuan. The share of time deposits increased 0.3 pct to 55.4% compared to the previous quarter, and the trend of deposit fixed-term deposits continued. In terms of market-based liabilities, interbank liabilities (including loans to central banks) and payable bonds increased by 6699 billion yuan and 251.6 billion respectively during the 4Q quarter, increasing 587.7 billion and 3115 billion dollars over the previous year, accounting for a total share of 19%, up 2.4 pct from the end of the 3Q quarter.
NIM narrowed by 5 bps to 1.7% from the previous three quarters and 31 bps narrower than in 2022. On the asset side, the company's interest-bearing assets and loan yields were 3.45% and 3.82%, respectively, down 8 bps and 12 bps from mid-year. Under the influence of multiple factors such as insufficient effective demand combined with LPR cuts, lower stock mortgage interest rates, and support for CITI chemical bonds, the downward pressure on loan pricing did not abate. On the debt side, the annual interest-paying debt and deposit cost ratios were 1.95% and 1.77% respectively, up 2 bps and 0 bps respectively from mid-year. Deposit regularization continued, market competition intensified, and debt costs were relatively rigid.
Subsequently, along with the expiration and repricing of stock products, the cost improvement effect brought about by the reduction in listed interest rates became apparent. At the same time, it was not ruled out that measures such as lowering the upper limit of self-regulation would be introduced to further ease the pressure on debt costs.
Non-interest revenue grew faster, accounting for 20% of revenue. CCB's annual non-interest revenue was $152.5 billion (YoY +8.9%), accounting for a decrease of 0.6 pct to 20% from the previous three quarters. Among them, (1) net revenue from processing fees and commissions was 115.7 billion yuan (YoY -0.3%), accounting for a decrease of 3 pct to 76% from 1-3Q, which was mainly dragged down by negative year-on-year growth in agency business. At the end of 2023, the company's retail customer AUM surpassed 18.5 trillion yuan, including private AUM of 2.52 trillion yuan, a year-on-year growth rate of 12.5%; at the end of the year, the company's asset escrow scale was 20.9 trillion yuan, achieving the “two-wheel drive” of Big Fortune Asset Management. (2) Net other non-interest income of 36.8 billion (YoY +53%). Among them, investment income increased 15% year over year to 16.9 billion; exchange income and fair value change profit and loss benefited from market fluctuations, and corresponding revenue all achieved significant year-on-year improvements, constituting the main driving force for net other non-interest growth.
The defect rate remains low, and the risk compensation capacity is strong. At the end of 2023, CCB's non-performing loan ratio was 1.37%, the same as at the end of 3Q, down 1 bps from the beginning of the year, maintaining the downward trend of recent years. Among them, the non-performing ratio for public and retail sales was 1.88% and 0.66%, respectively, down 20 bps from the beginning of the year, up 11 bps.
By industry, the real estate and batch zero defect rates were 5.64% and 1.91% respectively, up 1.3 and 0.3 pct from the beginning of the year, accounting for a high proportion of new non-performing cases throughout the year; retail operating loans and credit cards were the main drivers. The balance of non-performing loans at the end of the year was 325.3 billion, an increase of 32.4 billion dollars during the quarter, and the intensity of bad generation and write-off increased.
At the end of the year, the company's overdue rate and attention rate were 0.81% and 2.44% respectively. They changed by 4 bps and -8 bps respectively from the beginning of the year, and the forward-looking risk indicators showed steady performance. The company lost 144.7 billion dollars in credit impairment for the year, an increase of 4.9 billion dollars over 2022. The increase in provisions was not reduced. The annual risk cost (impairment loss/average total assets) was 0.38%, down 8 bps from the end of the 3rd quarter. The year-end loan ratio and provision coverage rate were 3.28% and 240% respectively, down 5 bps and 3.5 pct respectively from the end of the 3rd quarter, and risk offsetting capacity remained at a high level.
The capital adequacy ratio has a strong margin of safety, and there are plenty of capital replenishment tools. At the end of 2023, CCB's core Tier 1, Tier 1, and capital adequacy ratios were about 13.2%, 14%, and 18%, respectively, up 0.2, 0.2, and 0.4 pct from the end of the 3Q quarter. The net increase of 60 billion Tier 2 bonds during the 4Q quarter effectively increased capital. At the end of the year, the company's risk-weighted assets grew 13.3% year on year, down 3.3 pct from the end of the 3rd quarter. The slow pace of loan investment reduced capital consumption. Overall, maintaining strong resilience at the performance growth rate provided some support for CET1. At the same time, the company has a wide variety of capital replenishment tools, and epitaxial capital replenishment channels are unobstructed. As of March 28, the company has issued a total of 50 billion second-tier bonds in 1Q. The new capital management measures were implemented at the beginning of this year. It is expected that the company will benefit from parameter adjustments and optimization of the scope of internal evaluation, and capital adequacy ratios at all levels are expected to increase.
Profit forecasting, valuation and ratings. CCB is steadily advancing the three major strategies of “housing leasing,” “inclusive finance,” and “fintech.” Technology is empowering the three dimensions of B+C+G business transformation and restructuring, creating a “second growth curve”, and achieving integration and progress along the “one and two curves”. The company's revenue and profit are growing steadily, credit investment is booming, and characteristic businesses such as housing leasing, green finance, and agricultural inclusion are developing well. At the same time, the company's asset quality is steady and improving, and there are plenty of reserves. However, considering that the problem of insufficient effective demand has yet to be solved, the downward trend in loan interest rates is difficult to reverse, and NIM's operation under pressure is dragging down revenue and performance growth. Based on the company's 2023 annual report, we adjusted the company's 2024-25 EPS to 1.34 and 1.36 yuan (previous values were 1.39 and 1.45 yuan), adding 1.4 yuan to the 2026 EPS forecast. The PB valuation corresponding to the current stock price is 0.54, 0.5, and 0.46 times, respectively, and the corresponding PE valuation is 5.1, 5.01, and 4.87 times, respectively. In recent years, the company's dividend ratio has remained at 30%. As of the close of trading on March 28, the company's dividend rate was 5.86%, which is comparable to the highest in the industry, maintaining a “buy” rating.
Risk warning: Economic recovery fell short of expectations, downward pressure on loan interest rates increased, and repricing of stock mortgages and CITIC chemical bonds had a significant impact on NIM.