Event: On March 28, the Agricultural Bank released its 2023 annual report. Over 23 years, it achieved cumulative revenue of 694.8 billion yuan, YoY +0.03%; net profit to mother of 269.4 billion yuan, YoY +3.9%; non-performing rate of 1.33%, provision coverage rate of 304%.
Both revenue and profit grew positively. The cumulative revenue and net profit attributable to mother in '23 were +0.03% and 3.9%, respectively, and the growth rates were +0.6pct and -1.1pct, respectively, compared to 23Q1-3. Against the backdrop of the overall decline in industry loan yields, the positive increase in agricultural bank revenue shows operational resilience. We judge that revenue growth was mainly supported by county business. Agricultural Bank's county financial business revenue was +4.3% year-on-year in '23.
Dividing revenue, net interest income was -3.1% year-on-year in '23, and the negative growth rate narrowed compared to 23Q1-3. Among non-interest income, year-on-year revenue was -1.5% in 2016, mainly dragged down by agency financial management business; other non-interest income was +83.0% year-on-year, mainly from investment and exchange income.
The county has significant financial advantages. County loans are both quantitative and qualitative. The total assets, total loan amount, and total deposit amount of agricultural banks at the end of '23 were +17.5%, +14.4%, and +15.0%, respectively. Among them, county loans and county deposits were +19.8% and 14.2%, respectively; in terms of asset quality, the non-performing ratio of 1.24% for county loans at the end of '23 was 1.24%, lower than the bank's non-performing rate of 9BP. County deposit pricing is lower. The average cost rate of county deposits in '23 is 1.42%, which is 36 BP lower than the bank average, bringing low-cost debt to the Agricultural Bank.
The net interest spread narrows slowly. Agricultural Bank's net interest spread at the end of '23 was 1.6%, down 6BP from the end of 23H1. Looking at the full year of '23, the net interest spread fell by 30BP. On the asset side, the yield on 23-year interest-bearing assets decreased by 2BP compared to 23H1. In the context of repricing of 23Q4 stock mortgages, yield resilience mainly comes from public loans. Among them, the yield on short- and long-term loans increased in the second half of '23. On the debt side, the 23-year interest-bearing debt cost ratio increased slightly by 2BP compared to 23H1. Mainly, the cost of personal time deposits decreased, which brought about cost savings. Looking ahead, it is expected that the effects of the reduction in deposit listing prices will gradually become apparent.
The quality of assets is stable, and provisions are sufficient. The defect rate at the end of '23 was 1.33%, down 4BP from the end of '22. It has been declining for three consecutive years. Overall, forward-looking indicators such as attention rate and overdue rate have been running smoothly. At the same time, it was noted that loans overdue for 90 days or more at the end of '23 accounted for only 44% of non-performing loans, which indicates to a certain extent that the company's criteria for determining non-performing loans are quite strict. 23. The provision coverage rate at the end of 23 was 304%, and the risk compensation capacity was strong.
Investment advice: County financial advantages are remarkable, asset quality is relatively solid, and the overall performance of agricultural banks in 2023 is good. County customers are rich in resources, laying a solid foundation for corporate loan investment. County loans have both quantity and quality, low deposit costs and stable sources; bad certification is strict, and asset quality is solid. EPS is expected to be 0.78, 0.80, and 0.83 yuan respectively in 24-26, and the closing price on March 29, 2024 corresponds to 0.6 times 24-year PB, maintaining the “recommended” rating.
Risk warning: Macroeconomic growth is declining; asset quality is deteriorating; the decline in net interest spreads in the industry exceeds expectations.