1Q24 results are in line with our expectations
The company's 1Q24 net profit/profit before provision was +1.2%/+0.3%, and revenue remained flat year over year; revenue and profit growth were better than our expectations, mainly due to the narrowing of interest spreads.
Development trends
Revenue and profit were better than expected. The year-on-year growth rate of 1Q24's net profit/net profit before provision and operating income was better than expected in 2023, respectively. See: 1) Net interest income increased 2.2% year over year, up 5.6ppt from 2023, mainly due to the narrowing of interest spread decline; 2) Net handling fee revenue fell 6.4% year on year, down 2.2 ppt from last year, mainly due to the decline in agency business revenue due to the “integration of banking insurance premiums” and the reduction in the end commission rate for equity funds. The company's asset impairment losses fell -5.6% year on year, up 1.3 ppt from last year, and contributed positively to net profit of 0.9 ppt.
Interest spreads stabilized month-on-month. The company's 1Q24 net interest spread was 1.27%, down only 1 bps from last year; the net interest spread for the single quarter at the beginning and end of the period rose 3 bps from the fourth quarter, specifically: 1) Asset side: yield on 1Q24 interest-bearing assets was 3.53%, down 16 bps year on year, the same as 4Q23; of these, loan yield fell 35 bps to 3.76% year on year. The decline in loan yield is mainly due to the repricing of loan interest rates, the reduction in stock mortgage interest rates, and the 5-year LPR reduction this year; judging from the new loan interest rates, interest rates on 1Q24 loans have already rebounded 8 bps from 4Q23. 2) Debt side: The 1Q24 interest-paying debt cost ratio was 2.4%, a year-on-year decrease of 5 bps, mainly due to the gradual effects of lowering deposit listing interest rates several times in the previous period, and the company's high-cost deposit control. Looking ahead, the company said it will optimize the asset-side structure by increasing the share of inclusive and retail loans; the cost saving effect of lowering deposit listing interest rates may gradually become apparent, but the deposit regularization phenomenon has not changed.
The pace of asset expansion has declined slightly. The year-on-year growth rate of the company's total assets/loans in 1Q24 was 4.3%/6.8%, respectively, down 4ppt/2.3ppt from 2023, all the lowest levels since 2015, mainly due to the high base of 2023. Looking ahead, the company said that this year's credit growth has remained stable compared to 2023. The pace is arranged according to a ratio of 60% for the first half of the year and 40% for the second half, and is basically in sync with last year's pace. In terms of key areas, inclusive small and micro loans, technology innovation loans, green credit, and manufacturing medium- and long-term loans increased by 8.0%/5.2%/9.7%/6.4% respectively compared to the beginning of the year, all higher than the company's overall loan growth rate.
On the retail side, mortgage/credit card loans were -0.3%/-1.5% compared to the end of the previous year, and personal consumption loans were +15.2% compared to the end of the previous year. (continued on next page)
Profit forecasting and valuation
Considering that the company's interest spreads have stabilized month-on-month, we raised the company's 2024E net profit by 0.7%/1.7% to 93.8 billion yuan/95.3 billion yuan. The current A share price corresponds to the 2024/2025 0.5 times/0.5 times net market ratio, and the H share price corresponds to the 2024/2025 0.4 times/0.3 times net market share ratio. Keep the target price of A shares unchanged at 7.96 yuan, corresponding to 0.6 times the 2024 P/B and 0.6 times the 2025 P/B. There is 16.2% room for growth compared to the current stock price, maintaining the industry rating. Keeping the target price of H shares unchanged at HK$6.14, corresponding to 0.4 times the 2024 P/B and 0.4 times the 2025 P/B, there is 13.8% upside compared to the current share price, maintaining the industry rating.
risks
Economic recovery falls short of expectations, and real estate and local financing platforms are at risk.