Results for 2023 and 1Q24 fell slightly short of our expectations

Bank of Guiyang announced 2023 and 1Q24 results: 1Q24 revenue and net profit to mother were -2.5% and -3.6%, respectively; full-year 2023 revenue and net profit to mother were -3.5% and -8.9% YoY; 4Q23 single quarter revenue and net profit to mother were +2.2% and -24.2% YoY. The performance fell slightly short of our expectations, and we think it was mainly due to high provision increases.

Development trends

There was a significant year-on-year decrease in the number of new credits added in 1Q24. At the end of 1Q24, the company's total assets, loans and deposits increased 9.0%, 11.9%, and 1.3% year-on-year, and 5.2%, 2.3%, and 3.4% month-on-month. There was a marked year-on-year decrease in the number of new assets added to new assets in the first quarter, 6.5 billion yuan in 1Q24 and 10.8 billion yuan in 1Q23, while interbank assets and transactional financial assets increased significantly, contributing to other non-interest income; interbank liabilities increased more in terms of debt.

The 1Q24 net interest spread declined significantly from month to month. According to our estimates, 1Q24's net interest spread fell 32 bps from quarter to quarter, return on interest-bearing assets fell 36 bps, and interest-bearing debt cost ratio decreased by 9 bps. On a year-on-year basis, net interest spread, return on interest-bearing assets, and interest-bearing debt cost ratios were -49 bps, -45 bps, and -0bp to 1.85%, 4.45%, and 2.58%, respectively. In the context of urban investment and chemical bonds, asset-side returns declined significantly, and debt costs were rigid, leading to a sharp narrowing of interest spreads. At the end of 1Q24, company deposits accounted for 62.8% of liabilities, down 4.9ppt year on year; demand deposits accounted for 32.3% of deposits, down 1.2% year on year.

Investment income supports non-interest income and revenue growth. Net fee revenue for 1Q24 decreased 7.8% year over year, and other non-interest income increased 268.3% year over year. Net fee revenue in 2023 decreased by 32.1% year over year, and other non-interest income decreased by 11.3% year over year.

The defect rate, defect generation rate, and attention rate have all increased. At the end of 1Q24, the company's loan defect rate and attention rate were 1.63%, 3.82%, up 4bp, and 96bp, respectively; we estimated that 4Q23's bad generation rate was 2.21%, which was a significant increase from month to month. We think the company increased bad confirmation and write-off; 1Q24's bad generation rate was 1.13%, down a bit from the previous month; the provision coverage rate at the end of 1Q24 was 247.3%, down 17.6ppt from 3Q23, and slightly improved from the end of 2023.

Profit forecasting and valuation

As the company's net interest spread performance fell short of expectations, the 2024E and 2025E profit forecasts were lowered by 10.5% and 14.9% to $5.398 billion and $5.251 billion. The current stock price corresponds to 0.3 times the 2024E net market ratio and 0.3 times the 2025E net market ratio. The neutral rating and target price of 5.92 yuan remain unchanged, corresponding to 0.4 times the 2024E net market ratio and 0.3 times the 2025E net market ratio. There is 5.7% upside compared to the current stock price.

risks

Asset quality performance fell short of expectations, and the decline in net interest spreads exceeded expectations.