Incident: Everbright Bank released its 2023 annual report. During the reporting period, the company achieved operating income of 145.685 billion yuan, -3.92% year on year; realized net profit of 40.792 billion yuan, -8.96% year on year; and ROE (weighted) of 8.38%, -1.89pct year on year. By the end of the reporting period, the company's non-performing rate was 1.25%, the same as the previous year; the provision coverage rate was 181.27%, -6.66pct year on year. The company plans to pay 1.73 yuan for every 10 shares. The cash dividend ratio is +34BP to 28.41% year over year, and the dividend rate corresponding to the closing price on April 15 is 5.62%.

Performance was under phased pressure, and the profit growth rate turned negative due to increased provision plans. In terms of revenue, net interest income was -5.43% YoY to $107.480 billion, and net interest spread was -27BP to 1.74% year over year, mainly due to declining loan interest rates; mid-term income -11.39% YoY to 23.698 billion yuan, mainly driven by bank card service fee revenue -14.17% YoY; and other non-interest income +29.15% YoY to $14.507 billion, mainly net income from changes in fair value increased by $2,791 billion. In terms of net profit to mother, net profit attributable to mother turned negative year-on-year during the reporting period, mainly due to the company's increase in provisions in the fourth quarter to consolidate asset quality. In the fourth quarter, the company estimated provision of 16.589 billion yuan, +67.97%/+86.58% year-on-year, and +2.96% year-on-year.

The scale is growing steadily, and the three major indicators are rising steadily. On the loan side, corporate loans were +6.01% to 3.79 trillion yuan, or +12.14% to 2.17 trillion yuan compared to public loans, contributing the main increase; among them, manufacturing, strategic emerging industries, green loans, technology-based enterprise loans, and inclusive small and micro enterprise loans were +24.74%, +46.71%, +57.44%, +50.64%, and +24.18%, respectively. The company's ability to serve the real economy was further consolidated. On the deposit side, the company's deposits were +4.53% YoY to 4.09 trillion yuan, of which public/ retail deposits (including the corresponding portion of margin deposits) were +1.54%/+12.60% YoY to 2.82/1.20 trillion yuan. The three major Polaris indicators rose steadily, with financial business FPA +5.06% YoY to 5.09 trillion yuan, retail finance AUM +12.42% YoY to 2.73 trillion yuan, and financial market business GMV +18.14% YoY to 3.94 trillion yuan.

The quality of assets is stable, and capital strength is enhanced. As of the end of the reporting period, the company's defect rate/concern rate was 1.25%/1.84%, the same year on year; the overdue payment rate was 1.95%, -1 BP year on year; provision coverage rate was 181.27%, -6.66 pct year on year. The company replenished capital through multiple channels. During the reporting period, the company successfully achieved 16.9 billion yuan in convertible debt-for-shares and the issuance of 15 billion yuan of second-tier capital bonds. The core Tier 1 capital adequacy ratio/Tier 1 capital adequacy ratio/total capital adequacy ratio was +46BP/+35BP/+55BP year-on-year to 9.18%/11.36%/13.50%, further strengthening its capital strength.

Investment advice: The company adheres to the transformation of the business structure, anchors the three major Polaris indicators, and strengthens high-quality financial services in major strategies, key areas and weak links. Despite phased pressure on performance, the company has strengthened risk control, and the asset quality foundation has been further consolidated, providing momentum for high-quality development in the future. The company's revenue for 2024-2026 is estimated to be 1504.91, 1581.38, 162,454 billion yuan, net profit to mother of 433.04, 465.39, 484.89 billion yuan, and BVPS of 10.08, 10.90, and 11.76 yuan/share. The PB valuation corresponding to the closing price on April 15 is 0.31x, 0.28x, and 0.26x. The first coverage gives a “buy” rating.

Risk warning: macroeconomic growth declines, asset quality deteriorates sharply, transformation falls short of expectations