Incidents:
Industrial Bank announced its 23rd annual report. In 23, it achieved revenue of 210.831 billion yuan, -5.19% year-on-year, with a growth rate of +0.40PCT compared to the previous three quarters; net profit to mother was 77.116 billion yuan, -15.61% year-on-year, and -6.08PCT compared to the previous three quarters.
Improved deposit structure drives down costs, and interest spreads are more resilient
Net interest income for the full year of '23 was +0.85% year-on-year, and the growth rate was -0.25PCT compared to the previous three quarters. In terms of credit investment, as of the end of '23, Industrial Bank's loan balance was 5.46 trillion yuan, +9.59% year-on-year, and the growth rate was -0.34 PCT compared to the previous three quarters. The decline in loan growth is mainly due to the relatively weak growth in retail loans. In terms of new loans, in 23Q4, Industrial Bank added 146.999 billion yuan in loans, including 19.431 billion yuan in retail loans, accounting for only 13.22%. The slow growth in retail loans is mainly due to weak future income expectations and insufficient willingness to increase leverage. In 23Q4, China's residents' income confidence index was 47.00%, -0.40PCT compared to the end of the third quarter. Looking at net interest spreads, Industrial Bank's net interest spread for the full year of '23 was 1.93%. Compared with -1BP at the end of the third quarter, interest spreads are more resilient. Among them, the average yield on interest-bearing assets was 4.00%, compared to -5BP in the first half of the year, mainly due to a decline in loan yields. The average cost ratio on the debt side was 2.34%, compared to -1BP in the first half of the year. The increase in demand deposits mainly led to an improvement in deposit costs. As of the end of '23, Industrial Bank's share of current accounts was 35.96%, +1.11PCT compared to the end of the third quarter.
AUM is 40+% year-on-year, and customer service capabilities continue to improve
Net revenue from handling fees and commissions for the full year of '23 was -38.38% year-on-year, and the growth rate was -8.01PCT compared to the previous three quarters. Looking at the breakdown, among them, consultancy fee revenue related to wealth management was 5.256 billion yuan, -72.98% year-on-year, mainly due to the decline in the scale of old financial management products and the impact of capital market fluctuations. From a customer base perspective, by the end of '23, Industrial Bank's retail AUM reached 4.79 trillion yuan, +42.14% year over year. AUM grew strongly. In terms of customer service capabilities, Industrial Bank's “commercial bank+investment bank” strategy continued to advance. By the end of '23, the company's major investment banks had an FPA balance of 4.3 trillion yuan, +6.51% over the same period last year.
Asset quality is stable, moderate, and risk mitigation results in key areas are remarkable. At the end of '23, Industrial Bank's non-performing rate and concern rate were 1.07% and 1.55% respectively, compared to +0BP and +2 BP respectively at the end of the third quarter. The overdue rate was 1.36%, compared to -7BP in mid-year. The overall quality of assets is relatively stable, with a slight increase in the attention rate mainly due to the fact that Industrial Bank is more careful in risk classification and moved the risk classification of some unoverdue personal loans to the category of concern. Risk mitigation results in key areas were remarkable. The number of new defects in the public real estate business decreased by 54% year on year, and new bad debts on local government financing platforms fell 55% compared to the previous year. Looking at the dynamics, Industrial Bank's bad generation rate was 1.35%. Compared with +9BP in the first half of the year, the pressure of bad generation increased. In terms of provision, Industrial Bank's provision coverage rate at the end of '23 was 245.21%, +7.43PCT compared to the end of the third quarter, with sufficient risk compensation capacity.
Profit Forecasts, Valuations, and Ratings
We expect the company's revenue for 2024-2026 to be 2196.47, 2320.54, and 244.624 billion yuan respectively, with year-on-year growth rates of +4.18%, +5.65%, +5.42%, respectively, and a 3-year CAGR of 5.08%. Net profit attributable to mother was 821.16, 881.89, and 94.604 billion yuan respectively. The year-on-year growth rates were +6.48%, +7.39%, and +7.27%, respectively. The 3-year CAGR was 7.05%. In view of the continued progress of the company's “commercial bank+investment bank”, we gave the company 0.55 times PB in 2024, with a target price of 20.35 yuan, maintaining a “buy” rating.
Risk warning: Steady growth falls short of expectations, and asset quality deteriorates.