Matters:
On April 11, the Bank of Beijing released its 2023 annual report. In 2023, it achieved operating income of 66.7 billion yuan, an increase of 0.7% over the previous year, and realized net profit of 25.6 billion yuan for the whole year, an increase of 3.5% over the previous year. The weighted average return on net assets was 9.32%, down 0.28 percentage points from the previous year. At the end of '23, total assets were 3.75 trillion yuan, up 10.65% from the beginning of the year. Among them, the loan size increased by 12.1% compared to the beginning of the year, and the deposit size increased by 8.2% compared to the beginning of the year. The 2023 profit distribution plan is: 0.32 yuan per share (tax included), with a dividend rate of 30.28%.
Ping An's point of view:
Revenue performance has picked up, and provision planning has been strengthened. The net profit of the Bank of Beijing increased by 3.5% (+4.5%, 23Q1-3) year on year in 2023. Mainly, the company increased its provision and improvement efforts in the fourth quarter, and credit impairment losses for the whole year increased negatively by 11.5% (-26.4%, 23Q1-3) year on year. There was a slight recovery in revenue. The year-on-year growth rate for the whole year increased 3.9 percentage points to 0.7% compared to the previous three quarters, mainly due to the contribution of other non-interest income (investment income and changes in fair value, etc.). The positive contribution of the bond market in the fourth quarter led to a year-on-year increase of 62.7% (33.7%, 23Q1-3) for the whole year. The net revenue from handling fees and commissions increased negatively by 46.9% (-41.6%, 23Q1-3) for the whole year, mainly due to a 54.94% year-on-year decline in corporate agency and contract business revenue due to sluggish demand for wealth management and bank premium rate adjustments, which in turn dragged down the growth of the overall revenue collection business.
In terms of net interest income, the negative impact of the continued decline in asset-side pricing levels still exists, but the positive contributions brought about by the company's volume compensation and asset restructuring have increased. Net interest income for the whole year increased negatively by 2.2% (-3.8%, 23Q1-3) year-on-year, and the negative growth gap subsided slightly.
The reduction in interest spreads was superior to that of peers, and capital burdens were expanding steadily. The Bank of Beijing's net interest spread at the end of 2023 was 1.54% (1.54%, 23H1), which is basically the same level as the first half of the year. The margin of change is expected to be at the best level in the industry. First, looking at the asset side, the yield on loans in '23 was 4.19% (4.21%, 23H1). The pricing level declined slightly, but the decline is expected to be superior to that of peers. We judge that this is mainly due to the acceleration of the company's retail transformation and the further consolidation of its advantages in science and innovation finance. The share of the company's personal consumer loans in total loans at the end of the year 23 increased 1.72 percentage points to 9.98% compared to the end of the half year, and the share of technology finance loans in total loans increased 0.3 percentage points from the end of the half year to 12.9%. The increase in the share of high-yield assets hedged the impact of declining interest rates to a certain extent. On the debt side, the deposit cost ratio at the end of '23 was 1.97% (1.96%, 23H1). We expect that the adjustment of the deposit structure and the decline in listed interest rates will enable the company to maintain a relatively stable deposit cost ratio in the context of the intensification of the regularization trend. The share of time deposits at the end of '23 increased 5.3 percentage points to 57% compared to the end of the half year, and the share of demand deposits decreased by 4.9 percentage points to 35% compared to the end of half a year.
In terms of scale expansion, the Bank of Beijing's total assets increased 10.65% (+15.3%, 23Q3) year on year at the end of 23. Among them, loan size increased 12.1% year on year (+13.5%, 23Q3), and the growth rate slowed seasonally. Looking at the breakdown, loans to public and retail sales increased by 16.6%/9.8%, respectively, and public loans continued to rise. The growth rate of retail business declined slightly due to being dragged down by insufficient demand for mortgages. On the debt side, the company's total deposits at the end of '23 increased 8.2% year-on-year (+10.7%, 23Q3), and remained stable overall.
Defects declined slightly from month to month, and provision levels remained stable. The Bank of Beijing's non-performing rate fell 1BP to 1.32% at the end of 2023 compared to the end of the 3rd quarter, continuing the improvement trend. We estimate that the company's 23 non-performing loan generation rate was 0.74% (0.64%, 23H1), and the pressure to generate bad loans increased slightly. We expect this is mainly due to the impact of asset quality risk exposure on small and micro enterprises after the deferred debt service policy expires. In terms of forward-looking indicators, the company's attention rate at the end of 23 was 1.78% (1.50%, 23H1), and the overdue rate was 1.72% (1.67%, 23H1). We expect this is mainly due to disruptions in retail asset quality. Judging from comprehensive considerations, the company's core asset quality indicators have continued to improve in recent years, and the overall asset quality pressure is relatively manageable. In terms of provision, the company's provision coverage rate at the end of '23 increased by 1.55pct to 217% compared to the end of the 3rd quarter, and the loan ratio remained flat at 2.86% at the end of the 3rd quarter. Overall, it remained stable, and its risk compensation capacity continued to improve.
Investment advice: Retail transformation continues to advance, and asset quality trends are improving. Since its establishment, the company has been deeply involved in the Beijing region. It has the capital's economy and the resource endowments of government customers, and its deposit and loan scale ranks first among financial management enterprises in Beijing. Since 2022, the Bank of Beijing has continued to deepen its retail transformation, and its revenue and asset structure have been significantly optimized. As stock risks continue to be cleared, the company's future performance is expected to continue to improve as historical burdens continue to falter and market demand to recover under economic recovery. Considering the negative impact of the decline in the industry's overall asset-side pricing level on revenue, we slightly lowered the company's 24-25 profit forecast and added a 26-year profit forecast. The company's 24-26 EPS was 1.27/1.34/1.42 yuan respectively (the original 24-25 EPS forecast was 1.32/1.43 yuan, respectively), and the corresponding profit growth rates were 4.6%/5.4%/6.5%, respectively (the original 24-25 profit forecast was 6.6%/8.9%). Currently, the company's stock price is 0.45x/0.42x/0.39x, corresponding to 24-26 PB, respectively. The valuation safety margin is sufficient, and the “recommended” rating is maintained.
Risk warning: 1) The economic downturn has caused the pressure on the asset quality of the industry to rise more than expected. 2) The decline in interest rates caused industry interest spreads to narrow beyond expectations. 3) Increased cash flow pressure on housing enterprises has triggered a rise in credit risk.