Key points of investment
In 24Q1, the net profit of the Bank of Hangzhou surpassed expectations by 21.1%. Looking forward to the future, the high profit growth is expected to continue.
Performance Overview
Bank of Hangzhou 24Q1 revenue increased 3.5% year on year, and the growth rate decreased 2.8 pc from 23A; net profit to mother increased 21.1% year over year, and the growth rate decreased 2.0pc from 23A month on month. The 24Q1 defect rate remained flat at the end of 23Q4; the provision coverage rate at the end of 24Q1 was 551%, down 10 pc from the end of 23Q4.
High profit growth continues
Bank of Hangzhou's net profit for 24Q1 increased 21.1% year on year, and the growth rate decreased 2.0pc from 23A; revenue increased 3.5% year over year, and the growth rate decreased 2.8 pc from 23A month on month. The 24Q1 revenue growth rate was in line with expectations, and the profit growth rate exceeded expectations. Looking at the driving factors: ① The growth rate of scale slowed. At the end of 24Q1, interest-bearing assets increased 10.8% year-on-year, and the growth rate was 1.7 pc slower than at the end of 23Q4. ② The impairment contribution increased. 24Q1 impairment losses decreased by 25.5% year-on-year, and the decline was 7.4pc higher than 23A. ③ Tax contributions were strengthened. 24Q1 tax expenditure decreased 6.3% year on year, and the growth rate dropped sharply by 49.8pc compared to 23A. Mainly due to an increase in bond allocation and an increase in tax-free income.
Looking ahead, the Bank of Hangzhou is expected to continue to increase its profits in 2024, mainly due to stable asset quality and strong reserves, which are expected to continue to support a high profit growth rate.
Interest spreads are more resilient
24Q1 Bank of Hangzhou's single-quarter interest spread (average at the beginning and end of the period, slightly different from the actual value, same below) rebounded 1 bp to 1.46% month-on-month. Interest spreads were resilient, due to improved debt costs to hedge against the downward impact of return on assets. Specifically: ① In 24Q1, the return on assets fell 7 bps to 3.74% month-on-month, and the return on assets continued to decline, mainly affected by the decline in loan interest rates in the industry. ② The 24Q1 debt cost ratio fell 6 bps to 2.22% month-on-month, thanks to improvements in both structure and price. Structurally, fixed storage at the end of 24Q1 decreased by 1.2pc to 46.9% compared to the end of 23Q4. In terms of price, the Bank of Hangzhou has benefited from interest rate cuts on industry deposits, and deposit interest payment costs have decreased.
Looking ahead, it is expected that Bank of Hangzhou's interest spreads will still be under some pressure in 2024, mainly because asset-side returns are still under downward pressure, and there is limited room for improvement in debt-side cost ratios.
Poor performance is stable
The Bank of Hangzhou's non-performing rate, attention rate, and overdue rate at the end of 24Q1 was flat compared to the end of 23Q4, +12bp, +4bp to 0.76%, 0.52%, and 0.67%. Despite slight fluctuations in the attention rate and overdue rate, the absolute value was still at a very low level. Fluctuations in interest rates and overdue rates are judged to be related to the upward trend in small and micro loan risk in the industry.
Bank of Hangzhou's provision coverage rate at the end of 24Q1 was 551%, down 10pc from the end of 23Q4. The provision coverage rate is still at a very high level among listed banks.
Profit forecasting and valuation
Bank of Hangzhou's net profit is expected to increase 20.27%/19.12%/17.48% year-on-year in 2024-2026, corresponding to BPS 18.29/21.05/24.29 yuan. The target price is 14.63 yuan/share, corresponding to the 2024 PB of 0.80 times. As of the close of April 19, 2024, the current price is 12.05 yuan/share. The current price space is 21%, maintaining a “buy” rating.
Risk warning: The macroeconomic economy has stalled, and the bad situation has been greatly exposed.