1Q24 results fell slightly short of our expectations
Chongqing Agricultural Commercial Bank announced 1Q24 results: revenue decreased 2.9% year on year, profit before provision increased 5.5% year on year, and net profit to mother decreased 10.8% year on year. We believe that the company's profit performance before provision was good, but the net profit due to mother was slightly lower than our expectations, mainly due to the company's recovery of large non-performing assets in 1Q23 and the low credit impairment loss base. Looking ahead to 2024, we expect that the impairment losses of the Chongqing Agricultural Commercial Bank will still have room to decline. The net profit growth rate is forecast to be around 5-6%, and the 2024E dividend rate is 6.7%.
Development trends
The pace of scale expansion is slowing down, or it may be constrained by regional urban investment and chemical bonds. Total assets, loans, and deposits at the end of 1Q24 increased 4.1%, 4.9%, and 5.9% year-on-year, up 3.5%, 3.0%, and 6.2% from the beginning of the year. 1Q24 added 20.3 billion yuan in loans, an increase of 11.7 billion yuan compared to 1Q23, or were constrained by regional urban investment bonds. Investments in the purchase and resale of financial assets and other debt in other types of assets increased rapidly.
Looking forward to the future, we are optimistic that after the urban investment debt burden in the Chongqing region has been cleared, the “new Chongqing” construction will bring banking opportunities. Specifically, it includes the construction of a double city between Chengdu and Chongqing, a new land and sea corridor in the west, and the construction of the 33618 industrial cluster. As a regional bank with a high local share in Chongqing, the Chongqing Agricultural Commercial Bank is expected to benefit from regional economic improvements. Furthermore, the Chongqing Agricultural Commercial Bank insists on “retail development and technology development” and is committed to stabilizing market share. We see that its deposit growth in the first quarter still has a strong advantage.
Net interest spreads are still trending downward. According to our estimates, the company's 1Q24 net interest spread, return on interest-bearing assets, and interest-paying debt cost ratio decreased by 5 bps, 13 bps, and 7 bps to 1.50%, 3.23%, and 1.94%, respectively.
We believe that the company's net interest spread continues to be pressured by falling interest rates, but the company's debt side has hedged the pressure on interest spreads to a certain extent by deepening the local market and continuing to innovate business models.
The bad generation rate continued to decline month-on-month. At the end of 1Q24, the company's loan non-performing ratio was 1.19%, which remained stable from month to month; provision coverage rate was 367.5%, up 0.8ppt from month to month. According to our estimates, the company's 1Q24 defect generation rate was 0.41%, declining month-on-month, and asset quality continued to improve.
The year-on-year increase in the provision plan dragged down the net profit growth rate, mainly due to large bad recoveries in the same period last year, and the company said it would strive to maintain a stable repayment amount throughout the year. The 1Q24 company's provision plan increased sharply year over year, mainly due to the large amount of non-performing asset disposal and recovery in 1Q23, and the recovery amount accounted for 71% of the year (about 1.4 billion yuan, which had a significant impact on net profit of 3.5-40 billion yuan in a quarter), so there was a low base effect over the previous year. The company's guidelines will continue to increase the collection of non-performing assets and strive to achieve a year-on-year stable repayment amount in 2024. Therefore, we expect the company's impairment losses to decrease year-on-year throughout the year, driving a 5-6% increase in net profit.
Profit forecasting and valuation
Keep profit forecasts largely unchanged. Currently, A shares correspond to 0.4 times the 2024E net market ratio and 0.4 times the 2025E net market ratio, and H shares correspond to 0.3 times the 2024E net market ratio and 0.2 times the 2025E net market ratio. Maintaining an outperforming industry rating, keeping the target price of 5.71 yuan for A shares and HK$4.43 for H shares unchanged. A shares correspond to 0.5 times the 2024E net market net rate and 0.4 times the 2025E net market ratio, and H shares correspond to 0.4 times the 2024E net market ratio and 0.3 times the 2025E net market ratio, respectively, with 25.5% and 34.7% upward space compared to the current stock price.
risks
The performance of the regional economy fell short of expectations, and the decline in net interest spreads exceeded expectations.