Incidents:

On March 29, Jiangyin Bank released its 2023 annual report. It achieved annual revenue of 3.87 billion yuan, an increase of 2.3% year on year, and net profit to mother of 1.89 billion yuan, an increase of 16.8% year on year. The weighted average return on net assets (ROAE) was 12.55%, up 0.7 pct year over year.

Comment:

Revenue growth accelerated, and profit growth increased steadily. The year-on-year growth rates of Jiangyin Bank's annual revenue, profit before provision, and net profit to mother were 2.3%, 11.1%, and 16.8%, respectively. The growth rates were 1.8, 2.7, and 1.7 pct higher than in the previous three quarters, respectively.

Among them, the 4Q single quarter revenue and net profit growth rates were 8.9% and 21.7% respectively, up 10.2 and 24.5 pcts from the previous quarter, respectively. The annual net interest income and non-interest income growth rates were -6.6% and 50.6% respectively. The growth rates changed by -1 and 24 pct respectively from the previous three quarters. Split profit growth structure: (1) Net interest income “volume increase is difficult to offset price decline”. Scale drives performance growth to marginally weaken, and narrowing interest spreads also reduce the drag on performance. (2) The month-on-month increase in non-interest contributions is still the main support for profit growth. (3) Provision is made to contribute marginally to performance, and when asset quality is stable, provision is moderate to feed back profits.

Inventory expansion is accelerating, and the pattern of credit being “strong for the public and weak for retail” continues. The year-on-year growth rates of Jiangyin Bank's total assets, interest-bearing assets, and loans at the end of 2023 were 10.2%, 10.1%, and 11.9%, respectively, with changes of 2.7, 2.5, and -0.2 pct, respectively, from the end of 3Q23. In terms of loans, 4Q added 900 million dollars in a single quarter, down 60 million from the previous year. The share of interest-bearing assets decreased by 3 pcts to 62% from the end of the 3Q. Credit investment throughout the year was strong ahead, compounded by the demand for a “good start” for 24 years, and the pace of 4Q credit investment slowed down. At the structural level, public and retail sales increased by 9.6 billion and -63 billion yuan respectively for the whole year, an increase of 2.9 billion yuan and a decrease of 2.2 billion dollars; in the 4Q single quarter, public, retail, and notes increased by 2.6 billion, -4, and 1.04 billion, respectively, and the year-on-year changes were -0.6, -5, and 500 million, respectively. The “strong against the public and weak retail” situation continued. Among them, the ① manufacturing industry added 2.15 billion and 3.42 billion dollars during the year 0, an increase of 0.19 billion dollars over the previous year, and is the main investment in public loans. ② On the retail side, mortgages and credit cards decreased by 1.47 billion and 350 million during the year, with year-on-year decreases of 750 million and 210 million respectively. Operating loans and consumer loans increased negatively year-on-year.

The growth rate of deposits declined, and the trend of regularization and savings continued throughout the year. At the end of 2023, Jiangyin Bank's total liabilities, interest-paying liabilities, and deposits grew by 10.1%, 10.5%, and 9.9%, respectively, with changes of 2.9, 3.1, and -0.3 pct, respectively, from the end of the 3rd quarter. 4Q single-quarter deposits increased by 1.27 billion yuan, a year-on-year decrease of 270 million, and the share of interest-paying liabilities decreased by 4.4 pct to 84% from the end of the 3Q period. Looking at terms of term, 4Q fixed term and demand deposits increased by -11 billion and 2.47 billion, respectively, with year-on-year decrease of 430 million and an increase of 1.26 billion yuan, respectively. Year-end term deposits accounted for 60%, down 1.4 pct from the end of the 3rd quarter and up 2 pcts from the beginning of the year. Overall, the trend of deposit regularization is still ongoing. By customer type, corporate and personal deposits increased by 170 million yuan and 1.2 billion respectively in the 4Q single quarter, increasing by 1.84 billion yuan and decreasing by 1.01 billion yuan, respectively. Personal deposits accounted for 57.9%, up 0.4 pcts from the end of the 3Q period, and 2.4 pcts higher than at the beginning of the year.

NIM narrowed by 1 bps to 2.06% from the previous three quarters and 12 bps narrower than in 2022. On the asset side, yield on interest-bearing assets and loans was 3.92% and 4.47%, respectively, down 14 bps and 21 bps from mid-year, and down 20 bps and 51 bps from '22, respectively. Loan pricing operations are under pressure due to factors such as continuous reduction in LPR, insufficient effective demand, and increased competition among peers. On the debt side, the annual interest-paying debt and deposit cost ratios were 2.07% and 2.02% respectively, down 1 bps and 0 bps respectively from mid-year, all down 11 bps from '22. Debt costs showed strong rigidity in the context of deposit regularization. According to the company's official website, interest rates for time deposits were lowered again in March of this year. The reduction ranged from 10-25 bps for different periods. The trend of flattening the deposit yield curve intensified, and subsequent debt cost control dividends are expected to be gradually released. Looking ahead to the whole year, there is uncertainty about the pace of recovery in market-based financing demand. The downward trend in loan interest rates is difficult to change, the trend of regularizing debt-side deposits continues, the pace of inventory repricing is slower than on the asset side, and NIM is still facing narrowing pressure during the year.

Non-interest income is growing faster, and investment income is the main contributor. Jiangyin Bank's 2023 non-interest revenue was 800 million (YoY +51%), accounting for a decrease of 0.5 pct to 23% from the previous three quarters. Among them, handling fees and commission revenue of 80 million (YoY -13.6%) continued to grow negatively. The share of non-interest revenue fell 1.3 pct to 9% from the previous three quarters, mainly driven by negative increases in settlement fees. Net other non-interest income of 800 million (YoY +63%), accounting for a share of non-interest income increased 1.3 pct to 91% from the previous three quarters. Among them, investment income of 800 million yuan (YoY +104%), interest rates on the 4Q23 bond market declined, and the monetization of corporate bond transactions drove an increase in investment income.

The defect rate remains low, and the risk compensation capacity is strong. At the end of the year, Jiangyin Bank's non-performing rate was 0.98%, the same as at the end of the 3Q period, maintaining a historically low level of operation. The year-end attention rate and overdue rate were 1.06% and 1.19%, respectively, up 14 bps and 13 bps from the beginning of the year, and down 18 bps and 27 bps from mid-year. The performance of forward-looking indicators fluctuated slightly. The year-end non-performing balance was 1.13 billion yuan, an increase of 0.1 billion over the end of the 3Q period. During the year, bad generation and write-off efforts increased, and the overall asset quality was relatively stable. Credit impairment losses during the year were 780 million yuan, down 110 million from the previous year, and there was a slight decrease in provision increases. The year-end loan ratio was 4.01%, down 0.6 pct from the end of 3Q; the provision coverage rate fell 64pct to 409% from the end of the previous quarter, and the risk compensation capacity was strong.

The capital adequacy ratio increased at the safe margin. At the end of the year, the company's core Tier 1, Tier 1, and capital adequacy ratios were 13.1%, 13.1%, and 14.2%, respectively, up 0.3 pct from the end of the 3rd quarter. The company's upfront convertible bonds of 2 billion yuan matured on January 26, 2024, with a total share conversion of 1.39 billion yuan, effectively supplementing the company's core Tier 1 capital. The company's profit growth rate remains at a high level, the ability to replenish endogenous capital is strong, and the strong margin of capital safety also supports subsequent scale expansion. The risk-weighted asset growth rate at the end of the year was 7.85%, down 1.4 pct from the end of the 3rd quarter. The slow pace of credit investment reduced the intensity of capital consumption. Taking into account factors such as capital reserves and sustainable development, the company adjusted its cash dividend rate to 20.9% in 2023, down 3 pcts from 2022. By the close of trading on March 29, the company's dividend rate was 5.14%, which is among the highest in the industry.

Profit forecasting, valuation and ratings. Jiangyin Bank is deeply involved in the local market and has a clear geographical advantage. The background of private enterprise shareholders combined with first-class corporate banking qualifications has greatly helped the company to acquire and retain customers on the G+B side. In recent years, the company has promoted the transformation strategy of inclusive retail, focusing on the “inclusive, small, micro, and retail” troika going hand in hand. At the same time, since 2016, the company has actively laid out surrounding markets, and has successively set up three branches in Changzhou, Wuxi and Suzhou to replicate the local small and micro business model. The historical burden of the company's stock continues to fall, new risks are manageable, the pressure of bad generation is low, the margin of capital safety is strong, and there is plenty of room for future expansion. However, the pace of economic recovery is still uncertain at this stage. The recovery in financing demand has yet to be verified, the downward trend in industry loan pricing continues, and NIM is still under certain narrowing pressure.

Based on the company's 2023 annual report, we adjusted Jiangyin Bank's 2024-25 EPS forecast to 0.86 and 0.97 yuan (previous values were 0.98 and 1.14 yuan), adding 1.07 yuan to the 2026 EPS forecast. The PB valuation corresponding to the current stock price is 0.51, 0.46, and 0.41 times, respectively, and the corresponding PE valuation is 4.28, 3.82, and 3.47 times, respectively, maintaining the “increase in weight” rating.

Risk warning: The economic recovery process fell short of expectations, the decline in the customer base of major state-owned banks intensified, and the decline in interest rates on small and micro loans exceeded expectations.