Core views

Benefiting from the year-on-year increase in bond investment income, the Bank of Jiangsu continues to lead the industry in revenue growth. Although the performance growth rate has slowed, it has achieved rapid growth of more than double digits.

On the asset side, we actively grasped investment opportunities in the first quarter, focused on public investment, and achieved a month-on-month recovery in asset pricing. The trend of deposit fixed-term deposits has been relatively slow. More measures have been taken to improve debt costs and underwrite interest spreads, and it is expected to continue to maintain a performance growth rate of more than 10%. The dividend rate corresponding to the 23-year dividend is 5.6%. It has both high growth and high dividend characteristics, and maintains a buying rating.

occurrences

On April 25, the Bank of Jiangsu released its 2023 annual report and 2024 quarterly report: in 2023, it achieved operating income of 74.293 billion yuan, an increase of 5.3% (9M23:9.2%); realized net profit to mother of 28.750 billion yuan, an increase of 13.3% over the previous year (9M23:25.2%). 1Q24 achieved operating income of 20.999 billion yuan, an increase of 11.7% year on year, and realized net profit to mother of 9.042 billion yuan, an increase of 10.0% year on year.

In 2023 and 1Q24, the non-performing rate remained flat at 0.91%, and the 4Q23 provision coverage rate remained flat at 378.1% quarter-on-quarter. The 1Q24 provision coverage rate fell 6.9pct quarter-on-quarter to 371.2%.

The 2023 cash dividend rate was 30%, the same as the previous year.

Brief review

1. Bond earnings were outstanding, leading the industry in revenue growth in the first quarter. In 2023, the Bank of Jiangsu achieved operating income of 74.293 billion yuan, an increase of 5.3% year on year, and 1Q24 achieved revenue of 20.999 billion yuan, an increase of 11.7% year on year. Among them, due to the reduction in interest rates on existing mortgages and pressure on new loans, it had a negative impact on its net interest income. However, thanks to rapid double-digit growth in size, the Bank of Jiangsu achieved quantitative price compensation, and net interest income in 2023 and 1Q24 was basically flat year-on-year. In terms of revenue, along with the official implementation of the integration of banking insurance channels and the reduction of various rates, the Bank of Jiangsu's interim revenue in 2023 and 1Q24 decreased sharply by 31.6% and 16.8%, respectively, over the same period last year, which was the main drag on revenue. However, thanks to the active performance of the bond market in the fourth quarter of '23 and since the beginning of the year, Bank of Jiangsu 1Q24's other non-interest income increased sharply by 74.9% year-on-year, supporting the first quarter's revenue to achieve a double-digit growth rate and leading the industry.

Profit continued to grow at a rate of more than double digits, with growth in scale being the main contributor. In 2023, the Bank of Jiangsu achieved net profit of 28.75 billion yuan and net profit of 9.042 billion yuan in 1Q24, with year-on-year increases of 13.3% and 10.0%, respectively. In terms of attributing the first quarter results, the increase in scale and other net income contributed 15.8% and 13.8% respectively, which were the main contributors to the increase in the performance of banks in Jiangsu, while narrowing interest spreads, increased provision, and reduced revenue had a negative impact of 16.4%, 2.3%, and 1.5%, respectively, dragging down profit growth.

Looking ahead to 2024, along with the smooth conversion of convertible bonds, compounded by strong credit demand in the Jiangsu and Zhejiang regions, it is expected that the Bank of Jiangsu will continue to maintain double-digit large-scale growth. It is expected that it will continue to achieve quantitative price compensation on the basis of narrowing the decline in loan pricing, supporting the annual revenue growth rate of more than 5%. On the other hand, considering the extremely stable asset quality of the Bank of Jiangsu and its strong ability to offset risks, it is expected that the Bank of Jiangsu will achieve a performance growth rate of more than 10% throughout the year.

2. Public demand recovered month-on-month, and the trend of regularization slowed. In 2023, the Bank of Jiangsu's net interest margin (calculated value) was 1.82%, down 23 bps year on year, and 8 bps from 9M23. Among them, the yield on 2H23 interest-bearing assets of the Bank of Jiangsu decreased by 17 bps to 4.28% compared to 1H23 due to lower stock mortgage pricing and pressure on new loans, while the cost of interest-bearing debt was dragged down by the trend of deposit regularization. 2H23 increased 11 bps to 2.47% month on month 1 H23.

In the first quarter of 2024, thanks to a month-on-month recovery in public credit demand, the Bank of Jiangsu's 1Q24 yield on interest-bearing assets (estimated value) rose 6 bps to 3.82% from quarter to quarter. At the same time, along with the maturing repricing of term deposits, the Bank of Jiangsu 1Q24 interest-bearing debt cost (estimated value) fell 11 bps to 2.47% quarterly. Under joint improvements on both sides of the capital and liability, the net interest margin (estimated value) of the Bank of Jiangsu rose 12 bps to 1.69% quarterly.

On the asset side, actively seizing investment opportunities, the share of high-priced assets rebounded, and promoted a recovery in asset pricing in the first quarter. In terms of price, due to multiple LPR cuts and stock mortgage repricing, 2H23 Bank of Jiangsu loan yield fell 24 bps to 5.08% month-on-month compared to 1H23, which was a major drag on asset pricing. Due to relatively insufficient credit demand in the fourth quarter of 2023 and the Bank of Jiangsu's advanced investment strategy in 2023, the Bank of Jiangsu added loans in 4Q23 only accounted for 6.3% of the annual increase. Since the beginning of the year, along with the month-on-month recovery in demand for public credit, the Bank of Jiangsu actively grasped investment opportunities and continued to increase investment in manufacturing, infrastructure loans, etc., driving 1Q24 to increase 15.9% quarterly in the size of public loans and 5.7% in total loan size. In addition, the bill discount scale decreased by 33.7% quarterly, accounting for a quarterly decline of 2.7 pct to 4.6% of loans. The share of high-priced loans has clearly rebounded, and the loan structure has been optimized, which has strongly promoted the recovery in asset pricing.

On the debt side, the trend of deposit regularization slowed down, and debt costs dropped markedly in the first quarter. In terms of price, the Bank of Jiangsu's 2H23 deposit costs increased by 15 bps to 2.41% compared to 1H23. Furthermore, 2H23 interbank business and bond payable costs increased by 11 bps, 6 bps to 2.49%, and 2.64% month-on-month, respectively, due to the trend of deposit regularization, all of which had an impact on the Bank of Jiangsu's debt costs. However, it should be noted that the share of Bank of Jiangsu 2H23 demand deposits fell only slightly by 0.2 pct to 27.7% month-on-month. The decline was significantly narrower than the 0.6 pct in 1H23, and the trend of deposit periodization slowed down. In the first quarter, the Bank of Jiangsu further strengthened its control over its debt costs, and benefited from the slowdown in the trend of deposit regularization and the repricing of some term deposits at maturity, achieving a month-on-month pressure reduction on debt costs and underpinning interest spreads.

3. The quality of assets is stable, moderate and improving, and the ability to offset risks is solid and stable. The non-performing rate of the Bank of Jiangsu remained flat at 0.91% in 1Q24, and the 1Q24 plus write-off defect generation rate (estimated value) decreased by 78 bps to 0.71% from quarter to quarter. The Bank of Jiangsu's 2H23 bad generation was mainly concentrated in the public sector. Among them, the non-performing rate of loans to public real estate and construction increased by 31 bps and 26 bps to 2.54% and 1.40%, respectively, over the middle of the year. The 1Q24 provision coverage rate fell 6.9pct quarterly to 371.22%. The risk compensation capacity is solid and stable, and the level of provision is relatively high. In terms of forward-looking indicators, the Bank of Jiangsu's interest rate increased by 3 bps to 1.37% quarterly in 1Q24, and the overdue rate increased 3 bps to 1.07% from quarter to quarter. The potential risk is safe and manageable.

4. Investment advice and profit forecast: Benefiting from the year-on-year increase in bond investment income, the Bank of Jiangsu's revenue growth rate continues to lead the industry. Although the performance growth rate has slowed, it has achieved a rapid growth level of more than double digits. On the asset side, we actively grasped investment opportunities in the first quarter, focused on public investment, and achieved a month-on-month recovery in asset pricing. On the debt side, the trend of deposit fixed-term deposits has been relatively slow, and more measures have been taken to improve debt costs and underpin interest spreads. Looking ahead, considering the extremely strong credit demand and steady asset quality in the Jiangsu and Zhejiang regions, the Bank of Jiangsu is expected to continue to maintain a performance growth rate of more than 10%. Revenue growth in 2024, 2025, and 2026 is expected to be 5.1%, 6.5%, 7.5%, and profit growth rates of 11.0%, 11.5%, and 11.8%. Furthermore, the 2023 cash dividend rate remained flat at 30% year on year, and the corresponding dividend rate was 5.6%, which is characterized by high growth and high dividends. Currently, the Bank of Jiangsu's stock price is only 0.68 times 24-year PB. The valuation is severely suppressed by factors such as insufficient expectations for economic recovery and pessimistic market sentiment, and the cost performance ratio is outstanding. Maintaining the buying rating and leading position in the banking sector.

5. Risk warning: (1) Economic recovery is falling short of expectations, corporate solvency is weakening, and some enterprises with poor credit levels may be at risk of default, thus triggering the risk of poor bank exposure and a sharp decline in asset quality. (2) The concentrated exposure of risks in key areas such as real estate and local financing platform debt has had a major impact on banks' asset quality and greatly reduced banks' profitability. (3) The credit leniency policy is not as strong as expected, and the rapid economic development of the region where the company operates is unsustainable, thus greatly adversely affecting the company's credit investment. (4) The retail transformation effect fell short of expectations, and large-scale fluctuations in the equity market affected the company's wealth management business.