Key points of investment
The Bank of China led the big banks in revenue growth in 2023, and dividends remained stable.
Overview of the data
Net profit from Bank of China 23A increased 2.4% year on year, up 0.8 pc from 23Q1-3; revenue increased 6.4% year over year, down 0.6 pc from 23q1-3. The Bank of China's non-performing rate remained flat at 1.27% at the end of 23Q4, and the provision coverage rate dropped by 4pc to 192% compared to the end of 23Q3.
Leading the way in revenue growth
Net profit from Bank of China 23A increased 2.4% year on year, up 0.8 pc from 23Q1-3; revenue increased 6.4% year over year, down 0.6 pc from 23Q1-3. Revenue continued to grow rapidly, leading state-owned banks in growth. Looking at the driving factors: ① The non-interest growth rate rebounded. The Bank of China 2023A's non-interest rate increased by 24% year on year, and the growth rate improved by 3.5pc compared to 23q1-3. Among them, the mid-income growth rate bucked the trend and rebounded 1.6 pc month-on-month, which is better than the general trend of the industry. ② Interest spreads declined month-on-month. 2023Q4 estimates that interest spreads in a single quarter (at the beginning and end of the period, same below) fell 11 bps to 1.47% month-on-month, dragging down profits. ③ Impairment drag improved. 23A impairment loss increased 2.5% year-on-year, and the growth rate decreased by 7.6pc compared to 23Q1-3. Looking ahead, the Bank of China's revenue is expected to face downward pressure in 2024. In the future, it is still necessary to continue to observe the domestic and foreign interest rate environment, as well as the impact on interest spreads and revenue.
Interest spreads narrowed month-on-month
The Bank of China estimates that interest spreads fell 11bp to 1.47% in a single quarter in the 23Q4 quarter. ① On the asset side, the return on assets fell 6bp to 3.52% month-on-month in the 23Q4 quarter. The judgment was mainly due to the impact of interest rate cuts on existing mortgages. ② On the debt side, the debt cost ratio in a single quarter of 23q4 rose by 5bP to 2.26% month-on-month, judging that it was mainly due to the rise in foreign currency debt costs. 23A Bank of China's average daily foreign currency deposit interest rate was 2.36%, up 20 bps from the interim report; interest rates on RMB deposits fell 1 bps to 1.83% from the interim report. Looking ahead, due to factors such as the slowdown in the pace of interest rate hikes by the Federal Reserve and LPR interest rate cuts, it is expected that the mid-term bank interest rate spread will face some narrowing pressure in 2024.
Defects remain stable
The Bank of China's non-performing rate remained flat at 1.27% at the end of 23Q4, and the attention rate and overdue rate rose 23 bps and 7 bps to 1.46% and 1.06%, respectively, from the end of 23H1. Fluctuations in forward-looking indicators are judged to be related to the upward trend in retail risk in the industry and the upward risk of foreign currency assets. At the end of 2023A, the foreign currency business had an interest rate of 1.94%, up 40 bps from the interim report. Looking ahead, we still need to continue to pay attention to overseas risks and their impact on the Bank of China's asset quality indicators.
Dividends remain stable
According to the Bank of China's 2023 dividend plan, the dividend per share in 2023 was 0.24 yuan, slightly higher than in 2022.
The 2023 dividend ratio remained high at 30%, corresponding to the 2023 dividend rate of 5.25% (data as of the close of April 2, 2024).
Profit forecasting and valuation
The Bank of China's net profit is expected to increase 0.4%/5.3%/6.1% year-on-year in 2024-2026, corresponding to BPS of 8.08/8.62/9.20 yuan. The current price corresponds to 0.56 times the 2024 PB valuation. The target price is 5.27 yuan/share, corresponding to 0.65 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.