Results for 2023 and 1Q24 fell short of our and market expectations
Bank of Jiangsu announced results for 2023 and 1Q24: revenue and net profit due to mother increased 5.3% and 13.3% year on year in the full year of 2023, down 7.1% and 36.8% year on year in 4Q23, respectively, and 11.7% and 10.0% year on year in 1Q24, respectively. Overall, the net profit growth rate of the Bank of Jiangsu declined significantly compared to previous expectations, lower than our expectations and market expectations, mainly due to interest pressure and provision. In the current environment, the bank's net profit growth rate is similar to the revenue growth rate. Looking forward to the future, we expect the Bank of Jiangsu to still benefit from a more active regional economy and maintain a net profit growth rate of around 10% in 2024.
Development trends
The scale has maintained a relatively rapid growth rate. Total assets/loans/deposits increased 15.1%/13.1%/14.5%, respectively, at the end of 1Q24. The net increase in loans for the full year of 2023 was mainly due to leasing and business services, manufacturing, and personal consumption loans. 2H23 personal consumer loan investment increased marginally.
The 2023 net interest spread fell back to 1.98%. The average daily net interest spread for the full year of 2023 fell 34 bps to 1.98% year on year. We believe that income from holding transactional financial assets under the restoration caliber is no longer included in interest income to some extent. We estimate that 4Q23 net interest spreads fell 35 bps to 1.59%, and the 1Q24 quarter rose 23 bps to 1.82% month-on-month. Among them, the yield on interest-bearing assets rose 16 bps month-on-month compared to the 4Q23 low, and the interest-bearing debt cost ratio declined 10 bps month-on-month.
Among non-interest income, other non-interest income contributes more to revenue. Net fee revenue fell 102.2% year on year in 4Q23 and 16.8% year on year in 1Q24. We expect this is mainly due to the year-on-year decline in agency business revenue and a significant increase in handling fee expenses. Other non-interest income increased 141% and 75% year over year in 4Q23 and 1Q24, benefiting from a downward interest rate environment and supporting revenue growth.
The provision coverage rate declined slightly. At the end of 1Q24, the non-performing loan ratio remained flat at 0.91% month-on-month, and the share of overdue loans increased 3 bps to 1.10% month-on-month; the 4Q23 and 1Q24 non-performing loans rose to 1.07% compared to the previous period. We expect it mainly comes from personal loans; the provision coverage rate at the end of 1Q24 fell 6.9ppt to 371.2% month-on-month.
The dividend rate remains 30%, and the 2023 dividend rate is 5.6%. The weighted average ROE in 2023 was 14.52%, down 0.27ppt year on year; 1Q24 weighted average ROE was 15.38%, down 1.9ppt year on year. The dividend rate was maintained at 30% in 2023, and the current stock price corresponds to a dividend rate of 5.6%. At the end of 1Q24, the core Tier 1 capital adequacy ratio was 9.18%, which was relatively abundant after completing debt-for-equity conversion in 2023.
Profit forecasting and valuation
Considering the pressure on interest spreads and provisions, we lowered our profit forecast for 2024 by 11% to $31.7 billion and our profit forecast for 2025 by 15% to $35 billion. The current stock price corresponds to 0.67x/0.60x2024E/2025E P/B. Maintaining an industry rating and a target price of 8.46 yuan, corresponding to 0.67x/0.61x2024E/2025E P/B, there is 0.2% upside compared to the current stock price.
risks
Interest spreads declined more than expected, and asset quality deteriorated beyond expectations.