Event: On April 19, the Bank of Hangzhou released financial reports for 2023 and 24Q1. Revenue for 2023 and 24Q1 was 35 billion yuan, 9.8 billion yuan, YoY +6.3% and +3.5%, respectively; net profit to mother was 14.4 billion yuan, 5.1 billion yuan, YoY +23.2% and +21.1%, respectively; defective rate of 0.76% and provision coverage rate of 551% at the end of 24Q1.
Other non-interest income maintains a high contribution. In '23, the Bank of Hangzhou's net interest income, middle income, and other non-interest income increased by 2.5%, -13.5%, and 39.6% respectively. Entering 24Q1, net interest income and middle income continued to be under pressure. Other non-interest income maintained impressive growth rates, and remained the main supporting factors for revenue growth. The three changed -1.9%, -16.4%, and 36.4% year-on-year respectively. It is worth noting that the base for other non-interest income corresponding to the rapid growth in 24Q1 for the same period of 23 was not low. Profit growth slowed slightly, but remained at a high level. The net profit of the Bank of Hangzhou increased by 23.2% and 21.1% year on year in '23 and 24Q1, respectively. The growth rate declined from 23Q1-3 due to adjustments in impairment preparation and a slowdown in revenue growth, respectively.
Credit growth has remained high, and the structure is excellent. 24Q1 Bank of Hangzhou's total assets, total loan amount, and total deposit amount were +13.0%, 16.1%, and 11.0% year-on-year respectively. The loan growth rate was high and continued to be higher than the total asset growth rate, mainly due to strong economic vitality in the region and strong demand for credit. At the same time, the credit structure continues to be optimized, mainly in areas that meet the financial supply structure adjustment ideas. In 23, financing for science and innovation enterprises, green loans, manufacturing loans, and inclusive small and micro loans increased by 28%, 26%, 19%, and 19%, respectively. Looking ahead, the Bank of Hangzhou's science and innovation finance business is expected to maintain rapid growth, mainly due to its early entry into the field, superior customer resources and product systems, and sufficient scientific and technological innovation vitality in the main exhibition regions (Zhejiang, Beijing, Shanghai, etc.).
Deposit cost control is strong. Net interest spread at the end of 23 was 1.50%, down 6BP from the end of 23H1. Looking at the breakdown, asset-side returns continued the downward trend, and the average interest rate for loans in '23 fell 10BP compared to 23H1. Interest rates on debt-side deposits have declined a lot. The average interest rate on deposits in '23 fell by 4BP compared to 23H1, driving the interest-bearing debt cost ratio down by 3BP.
The bad rate for public and personal loans is declining. The defect rate at the end of 24Q1 was 0.76%, which remained unchanged for 5 consecutive quarters. The non-performing ratio of corporate loans and personal loans at the end of '23 decreased by 3BP and 2BP, respectively, compared to the end of '22. 23. Overdue loans for 90 days or more at the end of the year accounted for 58% of non-performing loans, and the determination of non-performing loans is quite strict. The provision coverage rate at the end of 24Q1 was 551%, and the provision safety pads were thick, which provided sufficient profit margins.
Investment advice: High credit growth, adequate provision
The Bank of Hangzhou's business is mainly located in the economically developed Zhejiang region, where local credit demand is strong; in recent years, it has focused on building science and innovation financial service capabilities, and has strong advantages in brand reputation, product systems, and customer resources. Science and innovation finance business development space is broad, further promoting credit investment; strengthening deposit cost management and further consolidating debt-side cost advantages; excellent asset quality, long-term low defect rate, and strong safety pads.
EPS is expected to be 2.89 yuan, 3.32 yuan, and 3.76 yuan respectively in 24-26. The closing price on April 19, 2024 corresponds to 0.7 times 24-year PB, maintaining the “recommended” rating.
Risk warning: Macroeconomic growth is declining; asset quality is deteriorating; the decline in net interest spreads in the industry exceeds expectations.