The scale is growing steadily, and the return on investment is improving
January-March net profit, revenue, and PPOP +1.5%, +3.7%, and +6.0% year-on-year (+10.6%, +3.1%, and -0.4% year-on-year, respectively). Profit growth fluctuated in 24Q1, mainly due to credit impairment losses of +72.5% year-on-year. Under the new capital regulations, the off-balance sheet credit commitment conversion coefficient has changed, and the company's off-balance sheet asset provision plan has been strengthened. We forecast an EPS of 1.29/1.39/1.54 yuan for 2024-26, and a BVPS forecast value of 12.57 yuan for 24, corresponding to 0.56 times PB. Comparatively, the company's 24-year Wind unanimously predicted an average PB of 0.54 times. We believe that the company's strategic transformation continues to deepen, the regional market share is expected to increase, and it should enjoy a certain valuation premium. We gave the 24-year target PB 0.70 times and a target price of 8.80 yuan, maintaining the “increase” rating.
Steady growth in scale and optimization of debt costs
Total assets, loans, and deposits at the end of March were +9.1%, +6.1%, and +6.2% YoY (+8.6%, +6.1%, and +7.9%, respectively, at the end of '23). The note impulse in the first quarter was quite obvious. Among the new loans, public, retail, and notes accounted for 55%, -48%, and 93%, respectively. The loan balance for technology-based enterprises at the end of March was 102.9 billion yuan, an increase of 10.4 billion yuan over the end of the previous year, an increase of 11.2%. The company began to lay out science and innovation finance in 2009, and the advantages of the science and innovation finance brand have been shown. Loan yields and deposit cost ratios declined by 14 bps and 3 bps from 23H1, respectively, and net interest spreads declined by 5 bps to 1.67% from 23H1 in '23. The net interest spread for 24Q1 is estimated to be declining compared to 23Q4, mainly dragged down by the asset side, and debt-side costs showed an improvement trend.
The revenue growth rate fluctuated, and the return on investment was impressive
Net revenue from 24Q1 handling fees and commissions was -23.7% (+5.2% year over year 23), and the revenue growth rate was under pressure, mainly due to a sharp drop in consignment insurance premiums. The company uses retail finance as the strategic “main battleground” to accumulate a valuable customer base, develop wealth management, and help improve profitability. Retail AUM at the end of March increased by 15.3 billion yuan compared to the end of 23. 24Q1's other non-interest income was +66.2% YoY (+26.8% YoY), supporting revenue growth. Among them, 24Q1 investment income was +178.1% YoY (-3.9% YoY), and the growth rate improved markedly. The 24Q1 cost-revenue ratio was -1.6 pct to 25.1% year-on-year. The company continues to promote standardized network construction and digital business transformation, and improve operational efficiency.
Asset quality fluctuates, consolidating capital levels
The non-performing loan ratio and provision coverage ratio at the end of March were 0.99% and 382%, respectively, compared with +2 bps and -23 pct at the end of March.
At the end of March, the attention rate was 1.27%, up slightly from +4bp at the end of 23, with a slight increase in the attention category indicators. The estimated defect generation rate in 24Q1 was 0.96%, up 0.05pct from 23Q4. The annual credit cost for 24Q1 was 0.71%, +0.18pct compared to the previous year, increasing the provision plan. The capital adequacy ratio and core Tier 1 capital adequacy ratio at the end of March were 16.97% and 14.49%, respectively, compared with +1.23pct and +1.17pct at the end of 23. In 2023, it is proposed to pay 0.38 yuan per share, with an annual cash dividend ratio of 30% (2022:30%), and a dividend ratio of 5.36% (2024/4/25). The board of directors agreed on the company's mid-2024 dividend arrangement.
Risk warning: Economic recovery fell short of expectations, and the deterioration in asset quality exceeded expectations.