China Everbright Bank's (CEB) attributable net profit decreased 9% YoY in in 2023, lower than our expectation. Its net interest income growth remained sluggish in 4Q23, which was mainly due to mixed effects of weak growth in interest-earning assets and decrease in NIM. Its net fee and commission income dropped 11.4% YoY in 2023 after decreasing 2.1% YoY in 2022. As of end December 2023, its loans/deposits increased 6.1%/4.5% from end 2022. CEB's asset quality was unchanged in 2023 compared with 2022. Looking ahead, we expect CEB to report positive growth in net profit in 2024 as the bank will continue to provide financial support to the real economy. Valuation remains cheap. Maintain BUY rating.

Key Factors for Rating

Asset quality remained solid 2023. Its NPL ratio reached 1.25% at end December 2023, unchanged from 1.25% at end December 2022. Meanwhile, its allowance to NPLs reached 187.3% at end December 2023, against 187.9% at end December 2022. We expect its NPL ratio to stay at 1.25% in 2024.

Net interest income dropped in 2023. Its net interest income decreased 5.4% YoY in 2023, which might be mainly due to decrease in net interest margin (NIM) and in line with overall banking sector trend. We noted its NIM dropped 27bps in 2023. We expect its NIM to drop another 11bps in 2024.

Net fee and commission income decreased in 2023. Its net fee and commission income decreased 11.4% YoY in 2023 amid weak investment sentiments. As a result, the proportion of net fee and commission income in total operating income dropped to 16.3% in 2023 from 17.6% in 2022.

Key Risks to Rating

The bank might be under strong pressure to provide more support to the real economy, if Chinese economy slows down significantly.

Valuation

Its H shares are now trading at 0.29x 2024E P/B, which remains quite cheap. We expect its ROAE to reach 8.3% in 2024, lower than sector's average level. Its 2023E dividend yield will be around 7.4%. Given lower than expected 2023 results, we revised our target price from HK$3.46 to HK$3.2, based on about 0.35x 2024E P/B. Maintain BUY rating.