Key points of investment
The revenue growth rate of the Agricultural Bank's 2023 annual report was corrected, leading the bank in profit growth.
Overview of the data
Agricultural Bank 23A's net profit increased 3.9% year on year, down 1.1 pc from 23Q1-3, ranking first among state-owned banks; revenue remained flat year on year, with a growth rate of 0.6 pc higher than 23Q1-3. Agricultural Bank's non-performing rate at the end of 23Q4 was 1.33%, down 2 bps from the end of 23Q1-3, and the provision coverage rate was 304%, which was the same as at the end of 23Q3.
Revenue growth rate turned positive
Agricultural Bank 23A's revenue increased slightly year-on-year. The growth rate was 0.6 pc higher than 23Q1-3, mainly due to the scale effect of asset investment and rapid growth in investment income. Specifically: ① Asset investment has maintained a high growth rate, ranking first among state-owned banks in terms of growth. At the end of 2023, interest-bearing assets increased 17.2% year over year, up 1.6 pc from the previous three quarters. The increase was mainly invested in public loans and bonds. ② The bond market and foreign exchange market conditions boosted the growth of other non-interest income. The growth rate of other non-interest income in 2023 was 83.0%, up 19.7pc from the previous three quarters. Exchange gains and losses and investment income each increased by more than 10 billion dollars. ③ Depreciation weakens the support for profits.
The asset impairment growth rate in 2023 was negative by 6.5% year-on-year, and the negative increase decreased by 3.2 pc compared to the previous three quarters. Looking ahead, Agricultural Bank's revenue growth in 2024 will face some pressure due to declining interest spreads and other high non-interest income bases. However, thanks to the high level of provision coverage, the positive increase in net profit is expected to continue.
Interest spreads narrowed slightly
The Agricultural Bank estimates that the 23Q4 single-quarter interest spread (initial and end caliber, same below) fell 9 bps to 1.42% month-on-month, mainly affected by the reduction in the stock of mortgage loans. The decline in interest spreads was mainly affected by the decline in return on assets. Specifically, the return on assets in 23Q4 was 3.22% in a single quarter, down 5 bps from month to month, and the decline in return on assets was affected by structure and price. ① On the one hand, the growth rate of retail loans is lower than that of public loans, and the share of high-yield loans has declined; on the other hand, interest rate cuts on existing mortgages and interest rates on new loans are still falling. ② 23Q4 The debt cost ratio for a single quarter was 1.98%, up 5BP from month to month. The judgment was mainly due to the increase in interbank debt costs as market interest rates increased. Looking ahead, agricultural bank interest spreads are still under downward pressure due to LPR cuts and loan repricing. When considering future deposit interest rate cuts and term structure improvements, it is expected that the decline in interest spreads will narrow.
Defects remain stable
In terms of static indicators, the defect rate at the end of 23Q4 was 1.33%, down 2 bps from the end of 23Q3; the attention rate was 1.42%, down 2 bps from the end of 23Q3; and the overdue rate was 1.08%, up 9 bps from the end of 23Q2. In terms of dynamic indicators, the estimated TTM defect generation rate in 2023 was 0.39%, down 5 bps from 23Q1-3. The provision coverage rate at the end of 23Q4 was 304%, the same as the previous month in 23Q3.
Maintain a 30% dividend rate
According to the 2023 dividend plan of the Agricultural Bank, the dividend per share in 2023 was 0.23 yuan, slightly higher than in 2022. The increase in dividend per share matches the profit growth rate. The 2023 dividend rate remained high at 30%, and the dividend rate reached 5.41% corresponding to the closing price on April 2.
Profit forecasting and valuation
Agricultural Bank's net profit is expected to increase 1.09%/3.93%/5.81% year-on-year in 2024-2026, corresponding to BPS 7.39/7.93/8.51 yuan. The current price corresponds to 0.58/0.54/0.50 times PB. The target price is 4.91 yuan/share, corresponding to 0.71 times the 2024 PB. The current price space is 15%, maintaining the “buy” rating.
Risk warning: The macroeconomic economy has stalled, and the bad situation has been greatly exposed.