Incident: Bank of Hangzhou disclosed the 2023 Annual Report and 2024 Quarterly Report: 2024Q1 net profit +21.11% YoY (+23.15% YoY in 2023, +26.06% YoY in the previous three quarters); Operating Revenue +3.50% YoY (+6.33% YoY in 2023, +5.26% in the first three quarters); annualized weighted ROE 19.96% (2023 weighted ROE 15.57%), +1.08pct YoY.
Comment:
Revenue continued to grow positively, and net profit to mother grew at an impressive rate. 2024Q1 Bank of Hangzhou's revenue grew at a year-on-year rate of -2.83 pct to 3.50% in 2023, and continued to grow positively; net profit to mother grew at a year-on-year rate of -2.05pct to 21.11% compared to 2023, and has been above 20% for three consecutive years, with impressive performance.
The company's performance was steady and high, mainly due to provision for back-up and scale expansion. The marginal slowdown in Q1 profit growth was mainly due to reduced provision contributions and scale growth, and interest spreads, while positive contributions were mainly due to income tax and other non-interest income and cost controls other than income tax and revenue collection.
Net interest spreads continued to narrow, and the balance and liability structure was optimized. In 2023, the Bank of Hangzhou's net interest spread was 1.50%, or -19bps, lower than the 1.57% interest spread level of all commercial banks in the city. Among them, the return on interest-bearing assets was -19bp, and the cost of interest-bearing debt was effectively controlled. According to our estimates, the net interest spread for 2024Q1 in a single quarter was basically flat month-on-month, or due to the optimization of the balance and liability structure. On the asset side, loans accounted for +1.58pct of total assets at the end of the previous year, and credit investment was skewed towards public loans, with a ratio of +2.03 pct to total loans; on the debt side, the ratio of deposits to total debt was +1.43pct compared to the end of the previous year. Among them, the overall deposit balance ratio was 18 bps to 47.90%, the company's deposit balance ratio was +1.14 pct to 58.51%, and personal deposit demand ratio -35 bps to 22.89%. 2024Q1
The defect rate remained flat month-on-month, leading the ability to withstand risk. At the end of 2024Q1, the Bank of Hangzhou had a non-performing rate of 0.76% and remained flat for 5 consecutive quarters. The attention rate was +12bp to 0.52% month-on-month, all of which were low among listed banks; the provision coverage ratio was -10.19pct to 551.23% month-on-month, continuing to lead the industry. The company has outstanding asset quality leadership, strong ability to withstand risks, and sufficient profit margins.
The scale expanded rapidly, and the capital adequacy ratio increased. The Bank of Hangzhou enjoyed the dividends of regional economic development and maintained a relatively rapid expansion in scale. The year-on-year growth rates of total assets, total liabilities, total loans, and total deposits at the end of 2024Q1 compared to -87bps, -96bps, +1.11pct, and -1.63pct at the end of the previous year to 13.04%, 13.02%, 16.05%, and 11.00%, respectively, and continued to maintain double-digit levels. The company's core Tier 1 capital adequacy ratio was +30bps month-on-month to 8.46%, and there is still room for buffer until the bottom line of supervision. In addition, the company's approximately 14.999 billion yuan of convertible bonds have not yet been converted into shares, and the validity period of the fixed increase resolution has also been extended. It is expected that in the future, capital will be replenished through profit release, promotion of convertible debt-for-share swaps, and fixed increases.
Profit forecast: The Bank of Hangzhou has obvious regional economic advantages, laying a solid foundation for its rapid expansion in scale and steady asset quality, and jointly helping to maintain high growth in performance. The company is promoting business transformation and structural adjustment in an orderly manner around the “2022 5” strategy, and the prospects for future high-quality development are positive.
We expect the company's closing price on April 22, 2024 to be 0.70 times, 0.61 times, and 0.53 times the 2024-2026 PB, respectively.
Risk factors: the economy declined beyond expectations, policies fell short of expectations, asset quality deteriorated significantly, etc.