The growth rate of net interest income turned negative in 24Q1, and net other non-interest income remained high. The cumulative year-on-year growth rates of the Bank of Hangzhou 23A/24Q1 revenue, PPOP, and net profit to mother were +1.1pct/-2.8pct, +3.9pct/-2.0pct, and -2.9pct/-2.0pct compared with 23Q3/23A, respectively. Looking at the breakdown, under the influence of narrowing interest spreads, the 24Q1 net interest income growth rate changed from positive to negative, down 4.4 pct from the end of 23; middle income continued to be under pressure, and the growth rate of net handling fee income fell 2.9 pct from the end of 23; and the growth rate of net other non-interest income fell 3.2 pcts to 36.4% from the end of 23, maintaining a high increase.
Loan investment is booming, and advantages related to politics and science and innovation have been consolidated. As of 24Q1, the year-on-year growth rate of Bank of Hangzhou loans increased by 1.1 pct to 16.1% compared to the end of 23. The increase was mainly due to public loans. Judging from the situation at the end of 23, driven by demand for regional project construction, government-related loans maintained a high growth rate of 33.0%, accounting for an increase of 1.9 pct to 64.9% compared to 23H1; the financing exposure of science and innovation enterprises increased by 28.2% year-on-year throughout the year, and characteristic business advantages were consolidated. There has been a marginal improvement in the growth rate of individual loans, mainly due to the restoration of the size of consumer loans.
23H2 interest spreads narrowed by 6 bps, and the cost of debt improved. The net interest spread was 1.50% at the end of '23. It narrowed by 6 bps in the second half of the year, down from 13 bps in the first half of the year. On the asset side, yield on interest-bearing assets decreased by 6 bps compared to 23H1, mainly due to a 10 bps drop in loan yield. On the debt side, the share of personal time deposits is basically stable. Combined with the reduction in deposit listing interest rates, the deposit cost ratio decreased by 4 bps compared to 23H1, driving the interest-bearing debt cost ratio to improve by 3 bps.
Asset quality remains excellent, and provision is sufficient to feed back profit margins. As of 24Q1, the defect rate was 0.76%. It remained flat at the end of '23, and the attention rate and overdue rate increased by 12 bps and 4 bps, respectively. By sector, the non-performing ratio of personal loans at the end of '23 fell 15 bps to 0.59% compared to 23H1, and the non-performing ratio rose by 7 bps to 0.84%. Mainly, the non-performing rate of real estate loans increased by 2.5 pct, but the impact on the balance of less than 5% was manageable. It is estimated that the 24Q1 credit cost ratio declined by 32 bps to 0.75% from the end of 23, and the provision coverage rate decreased by 10.2 pcts to 551.2%, and there is still sufficient profit margin for backfeeding.
Considering this year's special credit demand, pricing environment, and core assumptions such as lowering interest spreads and revenue growth, it is predicted that the company's net profit growth rate for 24/25/26 will be 19.7%/19.3%/20.0%, EPS will be 2.79/3.35/4.04 yuan, and BVPS will be 18.02/20.83/24.20 yuan (the original forecast value for 24/25 was 18.00/21.16 yuan). The current stock price corresponds to the 24/25/26 PB of 0.67X/0.50X. Comparable, the average PB value of the company in 24 years was 0.68 times. Considering the company's advantages in terms of profit growth rate, characteristic business competitiveness, asset quality and ROE, it maintained a 20% valuation premium, corresponding to 0.82 times PB in 24 years, with a target price of 14.74 yuan/share, maintaining a “buy” rating.
Risk warning
Economic recovery fell short of expectations; demand for credit fell short of expectations; deterioration in asset quality led to increased impairment losses.