Key points of investment

Minsheng Bank's interest rate growth rate was positive in 2023. The decline in interest spreads was better than that of its peers, and both bad ones continued to fall.

Overview of the data

Minsheng Bank's net profit from 23A increased 1.6% year on year, up 2.2 pc from 23Q1-3; revenue decreased 1.2% year over year, and the growth rate increased 0.9 pc from 23Q1-3. Minsheng Bank's non-performing rate at the end of 23Q4 decreased by 7 bps to 1.48% from the end of 23Q3, and the provision coverage rate increased by 0.5pc to 150% compared to the end of 23Q3.

Profit growth rate corrected

Minsheng Bank's net profit from 23A increased 1.6% year on year. The growth rate rebounded by 2.2 pc from 23Q1-3, mainly due to the increase in the growth rate and scale growth rate of other non-interest income. Looking at the main drivers: ① The growth rate of other non-interest income increased. The growth rate of other non-interest income in 2023 was 29.9%, up 19.4pc from the previous three quarters, mainly due to the lower base of other non-interest income in 22Q4, compounded by the overall upward support of the 23Q4 bond market. ② The scale growth rate increased. At the end of 2023, interest-bearing assets increased 7.2% year-on-year, up 0.6 pc from the previous three quarters. ③ The profit support of impairment weakened. The asset impairment growth rate in 2023 was negative by 4.5% year on year, and the negative increase was 3.3 pc narrower than in the previous three quarters.

Looking ahead, due to declining interest spreads, Minsheng Bank's revenue growth in 2024 is still under some pressure, but thanks to improved asset quality, depreciation pressure is expected to subside, supporting profit growth.

Interest spreads narrowed slightly

It is estimated that Minsheng Bank's 23Q4 single-quarter interest spread (initial and end caliber, same below) fell 5 bps to 1.42% month-on-month, and the decline in interest spreads was better than that of stock banks. The decline in interest spreads was mainly affected by the decline in return on assets. Specifically: ① Minsheng Bank's return on assets fell 6 bps to 3.76% month-on-month in 23Q4, and the decline in return on assets was affected by structure and price. On the one hand, the share of high-yielding loans declined, and the month-on-month growth rate of 23Q4 loans was 2.3 pc slower than the growth rate of interest-bearing assets; on the other hand, interest rates on stock mortgages were still falling. ② Minsheng Bank's debt cost ratio for the 23Q4 quarter remained flat at 2.45% month-on-month.

Looking forward to the future, Minsheng Bank's interest rate spread reduction is expected to continue to be better than that of its peers, mainly due to Minsheng Bank's 5Y loans being lower than the average of stock banks. At the same time, the fixed deposit ratio and deposit cost ratio are high, so there is plenty of room for improvement.

Bad things continue to drop

① At the end of 23Q4, the bad amount was -4.3% month-on-month, and the bad amount and bad rate declined for 5 consecutive quarters; in terms of forward-looking indicators, the attention rate fluctuated slightly, the attention rate at the end of 23Q4 was +4bp to 2.70% month-on-month, and the overdue rate at the end of 23Q4 was 2.00%, which remained flat at the end of 23Q2; according to dynamic indicators, the actual bad TTM generation rate in 2023 increased slightly by 5 bp to 1.05% from the previous three quarters, and is still at a low generation level of around 1%.

③ At the end of 23Q4, provision coverage increased slightly by 0.5pc to 150% month-on-month.

Profit forecasting and valuation

Minsheng Bank's net profit from 2024-2026 is expected to increase by 3.46%/5.80%/7.17% year on year, corresponding to BPS 13.74/15.37/17.11 yuan/share. The current price corresponds to 0.30/0.26/0.24 times the 2024-2026 PB valuation. The target price is 4.90 yuan/share, corresponding to 0.36 times PB in 24 years, and the current price space is 21%, maintaining the “buy” rating.

Risk warning: The macroeconomic economy has stalled, and there has been a sharp outbreak of malaise.