Incident: On April 9, the Bank of Ningbo announced its 2023 annual report (previously disclosed performance report), which achieved revenue, profit before provision, and net profit of 615.9 billion, 369.8, and 25.54 billion, respectively, compared with 6.4%, 3.2%, and 10.7%, respectively. The annualized weighted average ROE was 15.08%, a year-on-year decrease of 0.48pct.
The reviews are as follows:
Profit growth declined month-on-month, and interest spreads continued to narrow
The profit growth rate for the whole year was 10.7%, and the growth rate decreased by 1.9 pct from month to month. Looking at the full-year profit breakdown, high scale growth and provision backfeed were the main contributions; narrowing interest spreads, falling non-interest rates, and expenses were the main negative factors. On a quarter-on-quarter basis, the month-on-month decline in profit growth was mainly due to the continued narrowing of interest spreads and a decline in provision for backfeed.
The scale has increased, and the share of high-yield assets has increased
The growth rate of interest-bearing assets declined slightly from a high level, and interest-bearing assets increased by 14.8% throughout the year. Among them, credit increased 19.8%, and personal loans increased 29.6% year over year. The growth rate remained high in the competitive environment of consumer loan price reduction promotions, and the yield on personal loans fell 58BP year on year. The overall asset structure was optimized, and the share of credit (46.55%, +1.93pct compared to the beginning of the year) and the share of personal loans in total loans (40.49%, +3.09pct from the beginning of the year) increased. Structural optimization partially offset the impact of declining interest rates. The return on assets fell 9BP throughout the year, and the trend was relatively stable. On the debt side, deposits grew faster, up 20.8% from the beginning of the year, and the share of time deposits increased (64.06%, +5.37pct compared to the beginning of the year). The regularization factor was the main reason for the increase in debt costs. Looking ahead, against the backdrop of declining interest rates, the company may maintain high scale growth and structural optimization strategies, and net interest income is expected to maintain steady growth.
Investment income supports a positive non-interest growth rate
In terms of non-interest income, investment income in 2023 increased 15.8% year-on-year, supporting the positive growth rate of non-interest income.
Mid-year revenue in 2023 fell 22.8% year on year, and the growth rate declined sharply from the previous three quarters. On the one hand, the 22Q4 base was high. On the other hand, due to capital market fluctuations, agency business declined, and wealth business revenue declined year on year.
Concerned that loan ratios have risen month-on-month, provisions have declined month-on-month, asset quality has remained relatively good, the overall non-performing rate is low and stable, and the non-performing rate of personal loans has risen. The year-end defect rate was 0.76%, flat month-on-month and +1BP year-on-year. In addition, the net generation rate of bad write-offs was 0.96%, which is basically the same as the previous year. Looking at the breakdown, the non-performing ratio of public loans was 0.26%, down 11BP from the previous year. The company's share of public real estate and urban investment businesses was low, and the risk was small. The personal loan non-performing rate was 1.5%, up 11BP from the previous year. We judge that due to the acceleration of the consumer finance business, the customer base may sink or cause fluctuations due to poor retail sales. Looking at forward-looking indicators, the year-end focus was on a loan ratio of 0.65%, +11BP month-on-month and +7BP year-on-year; it may be related to rising retail risk. The year-end provision coverage rate and loan ratio declined from month to month, at -19.5pct and -16BP to 461.1% and 3.5%, respectively. On the one hand, write-off efforts were increased in the fourth quarter ($2.8 billion was written off in a single quarter, higher than the average single-quarter disposal amount of 1.5 billion in the past three years), and the year-end provision balance declined; on the other hand, it is related to an increase in the generation of bad retail sales.
Investment advice: The profit growth rate in the annual report was slightly lower than expected, mainly due to the impact of non-interest support and provision for backfeed. The company may maintain high scale growth and structural optimization strategies, and net interest income is expected to maintain steady growth. The pressure generated by poor retail sales has increased slightly, but the company's risk control continues to be prudent, and it is expected that bad and provision indicators will remain at an excellent level for listing banks. We expect the 2024-2026 net profit growth rates to be 9.6%, 11.1%, and 12.0%, respectively, with corresponding BVPS of 30.26, 34.20, and 38.61 yuan/share, respectively.
The closing price on April 10, 2024 was 20.46 yuan/share, corresponding to 0.68 times 24 PB.
We continue to be optimistic about the company's high growth: First, Bank of Ningbo is deeply involved in the Yangtze River Delta region and is expected to continue to benefit from regional economic development. Second, the company's institutional mechanism has a high degree of marketization, strong strategic execution, and a solid foundation for high-quality business expansion. Historical data shows that the company has continuous forward-looking quantitative and price control capabilities, prudent risk control capabilities, and the ability to diversify its business. Third, big retail and light capital strategies are progressing steadily, diversified profit centers are gradually being consolidated, and the negative impact of cyclical fluctuations on profits is weakening. Maintain a “Highly Recommended” rating.