The Bank of Hangzhou released its annual report for the year 23 and the quarterly report for the year 24, and the company released its express report for the year 23 earlier, so the key indicators of the annual report are already expected. 24Q1 revenue, PPOP, and net profit to mother increased by 3.5%, 4.5%, and 21.1%, respectively. Under pressure from industry operations, the company's profit growth rate remained 20+%, and performance growth exceeded expectations.
Highlights: (1) ROE has improved markedly, and endogenous capital capacity has been enhanced. The company's ROE rose to 15.6% in '23 (endogenous capital retention growth rate of 12.1% after deducting dividends), and the 24Q1 annual ROE was 20.0%, continuing to increase 1.1 pct year-on-year. The growth rate of the company's endogenous capital retention began to exceed the growth rate of risk-weighted assets, and endogenous capital capacity was enhanced. Combined with the implementation of new capital management measures and the relaxation of capital constraints, the core Tier 1 capital adequacy ratio was 8.46% at the end of March, up 0.3 PCT from the end of December. (2) The dividend rate has increased, and the amount of dividends has increased dramatically. The dividend ratio in '23 was 22.5%, a marginal increase from 21.9% in '22. In addition, thanks to the high growth in the company's performance, dividends per share and total dividends both increased 30% year over year. (3) Excellent asset quality. The non-performing loan ratio at the end of March was 0.76%, the same as at the end of December; the provision coverage rate at the end of March was 551%, a slight decrease of 10.2 PCT from the end of December. Although the provision coverage rate declined, the balance of provisions increased, and the increase exceeded current credit accruals, and the net generation of bad sales in a single quarter became negative. The 24Q1 estimated annualized net generation of non-performing loans was 170 million yuan, and the total amount of non-performing loans in Q1 increased by 520 million yuan. It is estimated that early write-off loans of nearly 700 million yuan will be recovered (only 660 million yuan of written off loans for the whole year), indicating the steadiness of the company's historical write-off policy. (4) Interest spreads recovered marginally in Q1 compared to 23Q4. 24Q1 calculated a net interest spread of 1.46%, up 1BP from 23Q4, with little change for 4 consecutive quarters (23Q2-24Q1). The estimated return on interest-bearing assets and the cost ratio of interest-bearing debt decreased by 7BP and 6BP, respectively, compared to 23Q4. Q1 Stable interest spreads are mainly due to changes in asset structure (share of loans increased, interbank share declined), and marginal pressure may follow the industry in the future.
Concern: (1) Other non-interest income has a high revenue contribution, and performance may fluctuate with the bond market. The company's other non-interest revenue in 24Q1 was 2.5 billion yuan, up 36.4% year on year, and is also a significant increase from the 23Q4 market. It is expected to be mainly due to bond market conditions, which may follow bond market fluctuations and cannot be expected to continue; (2) restructuring loans rose to 3.27 billion yuan (vs. 23h 1:50 billion yuan) at the end of 23 years, mainly due to caliber adjustments after the implementation of new financial asset classification regulations. At the end of 24Q1, the focus was on the loan ratio of 0.52%, up 12BP from month to month; the overdue loan ratio was 0.67%, up 4BP from month to month.
Profit forecasting and investment advice: The company's risk appetite is steady, debt improvement is solid, provision is made to maintain the highest level of the industry, and is expected to maintain medium- to high-speed growth. It is a model for value banking. Net profit growth is expected to be 18.2%/16.0% on 24/25, EPS is 2.75/3.21 yuan/share, BVPS is 17.98/20.66 yuan/share, and the stock price is 0.7X/0.6X corresponding to 24/25 PB. The company was given 1x PB for 24 years, corresponding to a reasonable value of 17.98 yuan/share, maintaining a “buy” rating.
Risk warning: (1) Macroeconomics declined more than expected, and asset quality deteriorated sharply. (2) Consumption recovery fell short of expectations, and deposit regularization was serious. (3) Market interest rates are rising, and transaction books are at a loss.