Introduction to this report:

Minsheng Bank's revenue and net profit growth rate in 2023 showed a recovery trend. The size of small and micro loans increased further and the non-performing rate declined, deposit costs improved marginally, and asset quality was stable, moderate and positive, and maintained an increase rating.

Key points of investment:

The investment proposal takes into account the 2023 financial report and 2024 credit volume and price trend forecast, and adjusts Minsheng Bank's 2024-2026 net profit growth forecast to 0.28%/1.22%/2.69%, corresponding to EPS0.72 (-0.13) /0.73 (-0.23)/

$0.75 (new). Raise target price to 4.66

Yuan, corresponding to 0.37 times PB in 2024, maintains an increase in holdings rating.

Performance is recovering, and the characteristics of small and micro loans are distinct. Revenue in 2023 fell 1.2% year on year. The decline was 14.4 percentage points narrower than in 2022, 0.9 percentage points narrower than the previous three quarters, and net profit increased 1.6% year over year. The scale of assets and liabilities grew steadily. Among them, the size of small and micro loans was close to 800 billion dollars, an increase of 15.8%. At the same time as the scale increased rapidly, the non-performing ratio also improved.

Net interest spreads are under pressure, and deposit costs have improved marginally. The net interest spread for the full year of 2023 was 1.46%, down 2 bps from the first half of the year. The decline narrowed. The yield on interest-bearing assets continued to decline due to LPR cuts and stock mortgage interest rate cuts, etc., but the cost ratio of interest-bearing debt decreased by 1 bps compared to the first half of the year, mainly due to corporate time deposits. Looking ahead, considering factors such as repricing, the return on assets may continue to decline, while the cost of debt is relatively rigid, and Minsheng Bank's interest spreads are still under pressure.

Asset quality continues to improve. The non-performing rate and bad balance have both declined for five consecutive quarters, and the provision coverage rate increased by 0.5pc compared to the end of September. Compared to the end of June, the non-performing loan ratio for public loans fell by 22 bps. Among them, the non-performing ratio in the real estate industry continued to decline, and the retail non-performing loan ratio increased by 11 bps due to credit cards. The attention rate increased by 3 bps from the end of June, the overdue rate remained flat, and the forward-looking indicators were generally stable.

Risk warning: demand recovery falls short of expectations; retail loan risk exposure exceeds expectations