Core views:
Agricultural Bank released its 2023 annual report: revenue, PPOP, and net profit to mother increased by 0.03%, -1.8%, and 3.9% year-on-year respectively. The growth rates changed by +0.56pct, +1.18pct, and -1.06pct respectively from 23Q1 to 3. Judging from cumulative performance drivers, scale growth, provision, other income and expenditure, and effective tax rates are the main positive contributions. Factors such as narrowing net interest spreads and rising cost-to-revenue ratios have contributed to a certain extent.
Highlights: (1) Asset burdens are expanding steadily. The year-on-year growth rate of interest-bearing assets in '23 was 17.6%. Among them, the loan size increased 14.4% year over year. Structurally, public loans increased by 19%, and the manufacturing industry, science and innovation, green credit, and inclusive small and micro sectors all achieved relatively rapid growth. The retail side developed consumer finance for people's livelihood, strengthened financial supply in rural areas, and achieved a high increase in personal consumer loans and farmers' loans. In addition, investment assets increased 17.7% year over year, mainly due to an increase in large-scale government debt holdings. Interest-bearing liabilities increased 18.6% year on year in '23, with deposits increasing 15.0% year on year, but demand deposits continued to decline quarterly, and deposit regularization continued. (2) Stable asset quality. The company's defect rate at the end of 23 was 1.33%, down 2 bps from the end of 23Q3, the attention rate was 1.42%, down 2 bps from the end of 23Q2, and the overdue rate was 1.08%, up from the end of 23Q2. The new bad generation rate in '23 was 0.56%, down 7 bps from year to year; provision coverage rate was 303.87%, and provision for safety pads was relatively strong. Looking at the retail loan non-performing rate by sector, there has been an increase. The main reason is that the non-performing rate for farmers' loans has risen, but the absolute value remains low at 0.76%; the non-performing rate for public loans has declined. (3) High growth in other non-interest rates. Other non-interest income increased 83% year over year in '23, of which 23Q4 increased 285% in a single quarter, mainly contributing to investment income from transactional financial assets.
Concern: Interest spreads continue to narrow. The company's net interest spread for 23 years was 1.60%, down 2 bps from 23Q1-3.
On the asset side, on the asset side, the yield on 23-year interest-bearing assets was 3.41%, down 2 bps from 23H1. Among them, loan yield fell 8 bps, which was affected by repricing of stock mortgages and declining interest rates on new loans. On the debt side, the 23-year interest-bearing debt cost ratio was 1.96%, up 2 bps from 23H1. On the one hand, deposit costs were rigid and rose 1 bps in the second half of the year due to factors such as higher foreign currency deposit costs and lower RMB deposit activation rates; on the other hand, the 23 interbank debt cost ratio rose 9 bps from 23H1, which is expected to be affected by capital tightening and capital interest rate increases in the second half of the year. Looking ahead to 24, asset-side yields are expected to remain under pressure under the influence of various factors such as LPR cuts, repricing, and local government bonds. Focus on the results of the previous round of deposit listing interest rate cuts.
Profit forecast and investment advice: The net profit growth rate for 24/25 is expected to be 1.6%/2.0%, EPS is 0.78/0.79 yuan/share, respectively. The current stock price corresponds to the 23/24 PE is 5.4X/5.3X, respectively, and the corresponding 23/24 PB is 0.56X/0.52X, respectively. The company was given a reasonable 24-year PB valuation of 0.7X, corresponding to a reasonable value of 5.16 yuan/share. According to the current AH premium ratio, H shares had a reasonable value of HK$4.09 per share, all maintaining a “buy” rating.
Risk warning: (1) economic growth has declined beyond expectations; (2) rising deposit costs have exceeded expectations; (3) international economic and financial risks have exceeded expectations; (4) policy regulation has exceeded expectations.