Core views:
Industrial Bank released its 2023 annual report. Revenue, PPOP, and net profit to mother changed by -5.2%, -6.0%, and -15.6% year-on-year, respectively. The growth rates changed by +0.40pct, +1.64pct, and -6.08pct from 23Q1 to 3, respectively. The revenue growth rate and PPOP growth rate improved slightly month-on-month, in line with market expectations, but the month-on-month decline in profit growth was lower than market expectations. The main reason was that 23Q4 companies further increased their reserves and strengthened asset quality.
Highlights: (1) The reduction in interest spreads has effectively narrowed. 23A net interest spread was 1.93%, down only 1bp from 23q1-3, and the decline was less than that of peers. Looking at the full year, the company's net interest spread fell 17BP. The decline was 2BP narrower than in '22. Net interest income achieved positive growth and was at a good level in the industry. The effects of the restructuring of the company's balance sheet were reflected. (2) Further consolidation of asset quality. In 23Q4, the company increased its provision and planning efforts, while also speeding up the identification and disposal of defects to further consolidate capital quality. At the end of 23, the non-performing loan ratio was 1.07%, the same as at the end of 23Q3; the provision coverage rate was 245.21%, up 7.43pct from the end of 23Q3; the overdue rate was 1.36%, down 0.07pct from 23h1, and overall stable. At the end of 23, the credit card defect rate was 3.93%, down 0.01pct from 23H1. The pressure on credit card asset quality that the market was concerned about in the early stages may have reached an inflection point. (3) The dividend rate has increased. Cash dividends in 2023 accounted for 29.64% of net profit attributable to common shareholders of the parent company, an increase of 1.33 percentage points over 2022.
Concern: (1) Profit growth is lower than expected. The company's annual profit growth rate declined further compared to the previous three quarters. Net profit growth rate for the 23Q4 single quarter was -38%, lower than market expectations, and may have a one-time impact on the company's stock price. (2) The non-performing rate in the leasing and business services industry is rising. The leasing and business services industry is the largest industry for corporate loans. The non-performing rate at the end of '23 was 0.95%, up 0.43pct from 23H1. It is the industry where the non-performing rate rose the most among the company's types of loans. We need to pay attention to whether this increase is due to poor confirmation or increased risk exposure pressure in related fields.
Profit forecast and investment advice: Objectively speaking, 2023 is a year of intense operating pressure for Societe Generale Bank. On the one hand, this pressure comes from pressure on the banking industry's overall operations; on the other hand, it stems from bad credit card exposure in the early stages and one-time income confirmation of the company's old financial management products in '22, which led to a marked decline in the company's profits. Looking ahead, as the high financial earnings base and bad credit card pressure subsides, the quality of the company's operations is expected to return to the forefront of the industry, and the company's performance growth rate is expected to reach an inflection point. It is estimated that the net profit growth rate of the company in 24/25 is 3.97%/7.80%, EPS is 3.66/3.96 yuan/share, respectively. The current stock price is 4.44X/4.11X for 24/25 PE, respectively, and 0.44X/0.41X for 24/25 PB respectively. Taking into account the company's historical PB (LF) valuation center and fundamentals, the company maintains a reasonable value of 30.95 yuan per share, corresponding to the 24-year PB valuation of about 0.8X, maintaining a “buy” rating.
Risk warning: (1) Asset quality deteriorated due to a decline in economic growth exceeding expectations; (2) rising deposit costs exceeding expectations; (3) policy regulation exceeding expectations.