Key points of investment
The Chongqing Agricultural Commercial Bank achieved a double decline in bad performance in 2023. Dividends remained stable, with a dividend rate of 6.19% in 23.
Overview of the data
Net profit of Chongqing Agricultural Commercial Bank 23A increased 6.1% year on year, slightly down 1.6 pc from 23Q1-3; revenue fell 3.6% year on year, and the growth rate decreased 0.7 pc month on month. The non-performing rate of the Chongqing Agricultural Bank at the end of 23A decreased by 1 bp to 1.19% from the end of 23Q3, and the provision coverage rate increased by 13pc to 367% compared to the end of 23Q3.
Profit growth is slowing
Net profit of Chongqing Agricultural Commercial Bank 23A increased 6.1% year on year, and the growth rate decreased slightly by 1.6 pc from 23Q1-3; revenue fell 3.6% year on year, and the decline increased by 0.7 pc month on month.
Looking at the driving factors: (1) Interest spreads declined month-on-month. 23Q4 estimates that interest spreads for a single quarter (early to end of period) fell by 10 bps to 1.65% month-on-month, dragging down profits; (2) other non-interest spreads were high. 23A's other non-interest rate increased 60% year over year, and the growth rate rebounded 46pc month-on-month, supporting profits, mainly due to the low base in 2022, compounded by the overall upward support of the 23Q4 bond market; (3) depreciation support weakened. 23A impairment losses decreased by 24% year over year, and the decline narrowed by 11pc from month to month. Looking ahead, due to declining interest spreads, the revenue growth rate of Yunong in 2024 is still under negative upward pressure, but thanks to improved asset quality, depreciation is expected to continue to support profits.
Interest spreads declined month-on-month
In 23Q4, the Chongqing Agricultural Commercial Bank estimated that interest spreads for the single quarter (early and end of the period, same below) fell by 10 bps to 1.65% month-on-month. Looking at the driving factors, the improvement in debt costs partially hedged the downward impact on return on assets. (1) The asset-side yield fell 16 bps to 3.59% month-on-month. The judgment was mainly due to the reduction in interest rates on existing mortgages, compounded by the decline in asset interest rates in the Chongqing region. (2) The debt-side cost ratio decreased by 5 bps to 2.01% month-on-month. Judging that it mainly reduced the pressure on high-cost public deposits. At the end of 23Q4, there was a 5% month-on-month decrease for public deposits. Looking forward to the future, due to factors such as LPR interest rate cuts and the implementation of a package debt policy, it is expected that the interest spreads of the Chongqing Agricultural Commercial Bank will still be under pressure to narrow.
Bad results in double reduction
In terms of inventory, the non-performing ratio and non-performing loans of the Chongqing Agricultural Commercial Bank fell by 1 bps, 1% to 1.19%, and 8.1 billion yuan respectively at the end of 23Q4, and achieved both declines in non-performing goods. The attention rate and overdue rate were flat compared to the end of 23Q2, with a slight increase of 2 bps to 1.14% and 1.42%, respectively, and remained stable overall.
In terms of generation, the Chongqing Agricultural Commercial Bank estimated that the generation rate of bad TTM decreased by 34 bps to 0.67% month-on-month in 23Q4. Bad generation improved markedly, and risk pressure continued to improve. In terms of provisions, the Chongqing Agricultural Commercial Bank's provision coverage rate rebounded 13pc to 367% month-on-month at the end of 23Q4, and the level of provision increased dramatically. Looking forward to the future, thanks to the clearing of the burdens of early history, it is expected that the trend of improving the asset quality of the Chongqing Agricultural Commercial Bank will continue in the future.
Increased dividend ratio
According to the 2023 dividend plan of the Chongqing Agricultural Commercial Bank, the dividend per share in 2023 was 0.27 yuan, slightly higher than in 2022. The increase in dividend per share matches the profit growth rate. Chongqing Agricultural Commercial Bank maintained a high dividend rate of 30% in 2023, and the dividend ratio reached a high level of 6.19% (as of March 29, 2024), with outstanding dividend performance.
Profit forecasting and valuation
The net profit of Chongqing Agricultural Commercial Bank is expected to increase 6.0%/6.7%/7.3% year-on-year in 2024-2026, corresponding to BPS 10.90/11.66/12.49 yuan. The current price corresponds to 0.43 times the 2024 PB valuation. The target price is 5.44 yuan/share, corresponding to 0.50 times the 2024 PB, and the current price space is 17%, maintaining the “buy” rating.
Risk warning: The macroeconomic economy has stalled, and the bad situation has been greatly exposed.