Key points of investment
For high-dividend banks, revenue and profit growth in the first quarter were over 10%.
Overview of the data
Bank of Jiangsu's net profit for 24Q1 increased 10.0% year on year, down 3.2 pc from 23A; revenue increased 11.7% year over year, and growth rate increased 6.4 pc from 23A. The Bank of Jiangsu had a defect rate of 0.91% at the end of 24Q1, which was flat at the end of 23Q4; the provision coverage rate decreased by 7pc to 371% compared to the end of 23Q4.
Revenue growth surpassed expectations
Bank of Jiangsu's 24Q1 revenue increased 11.7% year-on-year, achieving double-digit revenue growth, exceeding market expectations. ① The Bank of Jiangsu saw a high year-on-year increase in revenue, mainly due to actively seizing market opportunities and increasing its bond investment allocation in 23Q4. Other non-interest rate achieved a high year-on-year increase, and other non-interest rate increased 74.9% year-on-year in 24Q1. ② Bank of Jiangsu's profit growth rate has slowed, but it has maintained double-digit growth. The net profit of the Bank of Jiangsu increased 10% year-on-year in 24Q1. The growth rate decreased by 3.2pc compared to 23A, mainly affected by the intensity of impairment calculation and increased costs and expenses. Asset impairment losses increased 15% year on year in 24Q1, and the growth rate of asset impairment losses increased by 30 pc compared to 23A; 24Q1 cost to revenue ratio was 22%, up 2 pc year on year. Looking ahead, the Bank of Jiangsu's revenue growth rate may decline slightly. The main consideration is that the People's Bank of China indicates that nominal interest rates should be kept at a reasonable level, the bond market may be adjusted starting in Q2, and other non-interest contributions to revenue will weaken.
Interest spreads in a single quarter rebounded month-on-month
It is estimated that the 24Q1 single-quarter interest spread (earlier-end caliber, same below) rebounded 22bp to 1.77% from the low 23Q4 interest spread. The judgment is mainly related to changes in the balance and liability structure. ① The return on assets in 24Q1 increased by 15 bps to 4.29% compared to 23Q4. The judgment was mainly due to banks reducing the share of low-interest note discounts in the statement. At the end of 24Q1, note discounts fell 33.7% month-on-month, while loans increased 5.7% month-on-month. ② The 24Q1 debt cost ratio decreased by 11 bps to 2.47% compared to 23Q4. The judgment was due to the combination of an increase in deposit share and a reduction in deposit interest rates. Deposits increased 11% month-on-month at the end of 24Q1, which is 3pc faster than interest-bearing debt. Looking ahead, considering the high and low interest spread base in 2023, it is expected that subsequent interest spreads will ease the drag on revenue.
Asset quality fluctuates slightly
① The non-performing rate remained stable, with a defect rate of 0.91% at the end of 23Q4; in terms of forward-looking indicators, the interest rate and overdue rate fluctuated slightly, with interest rate +3bp to 1.37% month-on-month, and the overdue rate at the end of 24Q1 was +3bp to 1.10% month-on-month; looking at dynamic indicators, it is estimated that the real bad TTM generation rate in 2023 increased by 23 bps to 1.30% compared to the first half of 2023; in the industry sector, the non-performing loan rate in some sectors increased by 23 bps to 1.30% compared to the first half of 2023. The non-performing rates of service loans, real estate loans, construction loans, and personal business loans increased by 15 bps, 46 bps, 24 bps, and 12 bps, respectively, compared to the end of 23H1. ② At the end of 24Q1, the provision coverage rate decreased by 7pc to 371% month-on-month.
Profit forecasting and valuation
The Bank of Jiangsu's 24Q1 revenue growth rate and profit growth rate both exceeded 10%, corresponding to the 2023 dividend rate of 6.13%, which has a high allocation value. Bank of Jiangsu's net profit is expected to increase by 13.5%/13.2%/12.6% year-on-year in 2024-2026, corresponding to BPS 12.73/14.13/15.71 yuan/share. The current price corresponds to 0.60/0.54/0.49 times the 2024-2026 PB valuation. The target price is 9.37 yuan/share, corresponding to 0.74 times PB in 24 years, and the current price space is 22%, maintaining the “buy” rating.
Risk warning: The macroeconomic economy has stalled, and there has been a sharp outbreak of malaise.