Industrial Bank released its 2024 quarterly report. The 24Q1 revenue, PPOP, and net profit to mother increased by 4.2%, 7.3%, and -3.1% year-on-year respectively. The growth rates changed by +9.42pct, +13.29pct, and +12.51pct, respectively. The revenue growth rate and PPOP growth rate both rebounded markedly from month to month. In terms of performance drivers, factors such as scale expansion, other income and expenditure, the decline in the cost-revenue ratio, and the reduction in the effective tax rate have contributed positively, while factors such as narrowing net interest spreads, net handling fee revenue, and provision accruals are a drag.
Highlights: (1) The reduction in interest spreads has been effectively narrowed. The 24Q1 net interest spread was 1.87%, down 2 bps month-on-month and 10 bps year-on-year. The decline narrowed, and net interest income achieved positive growth. Among them, the company absorbed low-cost deposits and reduced pressure on high-cost deposits, and the 24Q1 deposit cost ratio decreased by 12 bps to 2.12% year on year; (2) there was a steady increase in public loans. 24Q1 loans increased 7.9% year on year, and declined year over month. Mainly affected by weak growth in personal loans and a sharp drop in bill pressure, the public sector still maintained a high growth rate of 20%. Sectors such as technology, green, and inclusiveness maintained steady growth, and retail operating loans also achieved a high increase. (3) Decrease in cost to revenue ratio. The company's 24Q1 cost to revenue ratio was 23.52%, down 1.9 pct year on year, and business management expenses under “revenue growth and savings” decreased by 3.73% year on year.
(4) High growth in other non-interest rates. Other non-interest income increased 16.2% year-on-year in 24Q1, and the main contribution came from investment income from bond-type financial assets.
Attention: (1) Increased attention rate. The defect rate at the end of 24Q1 was 1.07%, the same as in '23, and the attention rate was 1.70%, up 15 bps from '23. On the one hand, it was affected by factors such as macroeconomic structural transformation and real estate market adjustments. On the other hand, the company took the initiative to downgrade some projects that were not overdue and had hidden risks. In 24Q1, the estimated new generation rate of bad cases was 1.06%, up 17 bps over the previous year, focusing on subsequent risk exposure. (2) Increased competition for deposits. 24Q1 deposits increased 4.8% year over year, down 4.1pct from '23, indicating a further intensification of competition for bank deposits. (3) Increased level of provision accounting. Asset impairment losses totaled 16.1 billion yuan in 24Q1, an increase of 46% over the previous year. However, the loan provision coverage rate at the end of 24Q1 was 245.51%, which is basically the same as at the end of 23. It is expected that, first, due to the increase in poor loan generation, follow-up attention will be paid to key risk areas such as real estate; second, provision for non-credit assets has been increased.
Profit forecast and investment advice: The company's revenue growth rate has clearly rebounded in 24Q1. The profit growth rate is expected to pass. Looking forward to the continuation. As bad stock pressure subsides, the company's operating quality is expected to return to the forefront of the industry. The company's net profit growth rate for 24/25 is 3.4%/3.5%, EPS is 3.63/3.77 yuan/share, respectively. The current stock price is 4.45X/4.29X for 24/25 PE, respectively, and 0.44X/0.41X for 24/25 PB respectively. Taking into account the company's historical PB (LF) valuation center and fundamentals, the company maintains a reasonable value of 30.95 yuan per share, corresponding to the 24-year PB valuation of about 0.8X, maintaining a “buy” rating.
Risk warning: (1) Asset quality deteriorated due to a decline in economic growth exceeding expectations; (2) rising deposit costs exceeding expectations; (3) policy regulation exceeding expectations.