Debt costs have improved, and investment returns are improving
Net profit, revenue, and PPOP from January to March were +21.1%, +3.5%, and +4.5% (+23.2%, +6.3%, and +6.6% year-on-year, respectively). The slowdown in revenue growth was mainly due to a drag on net interest income.
The January-March annualized ROA and ROE were 1.09% and 19.96% respectively, up 0.07pct and 1.08pct year-on-year.
We forecast an EPS of 2.91/3.47/4.13 yuan for 2024-26, and a BVPS forecast value of 18.02 yuan for 24, corresponding to 0.67 times PB. Comparatively, the company's 24-year Wind consistently predicts an average PB of 0.67 times. The company is rooted in high-quality regions, has deep economic advantages, and should enjoy a certain valuation premium. We gave the 24-year target PB 0.80 times, a target price of 14.42 yuan, and maintained an “increase” rating.
Credit has grown steadily and debt costs have improved
Total assets, loans, and deposits at the end of March were +13.0%, +16.1%, and +11.2% (+13.9%, +14.9%, and +12.8%, respectively, at the end of 23). New loans of 63.7 billion yuan were added in the first quarter. The increase was higher than in the same period last year. The main contribution to the public sector (including notes) and retail sales accounted for 93% and 7% of the new loans, respectively. The balance of inclusive small and micro loans at the end of March was 136 billion yuan, +14.1% year-on-year, accounting for 15.6% of total loans. Small and micro mortgage loans and inclusive small and micro credit loans were +13.8% and +26.5%, respectively. Net interest spread of 1.50% in '23 was 1.50%, compared to 23h-6bp, an improvement in debt-side costs. The 23-year loan yield and deposit cost ratio were 23h-10bp and -4bp, respectively. The net interest spread for 24Q1 is estimated to be -6 bps compared to 23 years, and is also mainly dragged down by the asset side. The return on interest-bearing assets and the interest-bearing debt cost ratio were 23 to 15 bps and -11 bps, respectively.
The scale of financial management is picking up, and investment returns are impressive
Net revenue from 24Q1 fees and commissions was -16.4% YoY (-13.5% YoY), and revenue continued to be under pressure.
Looking at the breakdown, revenue for the year 23 was mainly dragged down by escrow and other fiduciary businesses. Revenue fell 1.02 billion yuan year over year, or -29.2% year over year. It is estimated that due mainly to capital market fluctuations, financial management fee revenue was under pressure. The scale of financial management has picked up since the second half of '23. The balance of financial management at the end of '23 was 373.9 billion yuan, +11.4% compared to the first half of the year. 24Q1's other non-interest income was +36.4% YoY (+39.6% YoY), supporting revenue growth, or mainly due to the good trend in the bond market since the fourth quarter, with impressive growth in investment income. 24Q1 investment income was +28.2% YoY (+203.3% YoY in the 23Q4 single quarter under a low base in the previous period).
The non-performing rate remains stable, and the dividend ratio has increased
The non-performing rate and provision coverage rate at the end of March were 0.76% and 551%, respectively, the same as at the end of 23, and -10pct.
The attention rate at the end of March was 0.52%, up slightly from +12bp at the end of 23, with a slight increase in the attention category indicators. The estimated defect generation rate in 24Q1 was -0.04%, compared with 23q4-0.84pct. The estimated annual credit cost for 24Q1 was 0.75%, -0.41pct year on year, driving profit release. The capital adequacy ratio and core Tier 1 capital adequacy ratio at the end of March were 12.70% and 8.46% respectively, +0.19pct and +0.30pct at the end of 23. The proposed dividend of $0.52 per share in '23 ('22: $0.40), with an annual cash dividend ratio of 22.52% ('22:
21.82%), with a dividend ratio of 4.32% (2024/04/19).
Risk warning: Economic recovery fell short of expectations, and the deterioration in asset quality exceeded expectations.