4Q23 and 1Q24 results are in line with our expectations
The Bank of Nanjing announced its 2023 and 1Q24 results: revenue for the full year of 2023 increased 1.2% year on year, net profit up 0.5% year on year; 4Q23 single quarter revenue increased 0.5% year on year, net profit to mother decreased 6.4% year on year; 1Q24 single quarter revenue increased 2.8% year on year, net profit to mother increased 5.1% year on year; 4Q23 and 1Q24 results were basically in line with our expectations. The company has stepped up efforts to write off and dispose of defective goods, which is conducive to starting a new five-year strategic plan for light packaging.
Development trends
The scale has maintained a relatively rapid growth rate. Total assets/loans/deposits increased by 11.5%/14.6%/2.9%, respectively, at the end of 1Q24. The net increase in loans for the full year of 2023 was mainly from leasing business services, personal consumption loans, water environment and public facilities management; the net increase in 1Q24 loans mainly came from public loans, with retail loans accounting for 0.46% of the net increase. Credit investment within and outside of Jiangsu Province continued to increase, accounting for a net increase of 63.1% for the whole year.
The decline in interest spreads has dragged down the growth rate of net interest income. Net interest income for 4Q23 fell 14.5% year on year, and net interest income for 1Q24 fell 9.0% year on year, mainly due to continued decline in interest spreads. The average daily net interest spread in 2023 was 2.04%, a year-on-year decrease of 15 bps, mainly due to declining yields on public loans and rising cost ratios for public deposits, which is in line with industry trends. We estimate that the 4Q23 net interest spread fell 18 bps to 1.22% quarterly and improved to 1.40% in the 1Q24 quarter. The fluctuation may be due to changes in investment pace. We estimate that the return on 1Q24 interest-bearing assets increased by 11 bps to 4.15% from quarter to quarter, and the interest-bearing debt cost ratio decreased by 5 bps to 2.47% from quarter to quarter.
The contribution of other non-interest income continues to increase. The financial market business maintained its comparative advantage. In 1Q24, other non-interest income increased 15% year over year, and revenue contribution increased to 39.5%; of these, fair value changes increased 2.9 billion yuan year over year. Net handling fee revenue fell 54.7% year on year in 4Q23, mainly due to the year-on-year decline in bond underwriting revenue; 1Q24 increased 28.8% year over year.
Write-off and disposal efforts have been stepped up, and the incidence of defects in 4Q23 and 1Q24 has increased. We estimated that 4Q23 and 1Q24 bad generation rates were 1.32% and 1.21%, respectively, up from previous quarters. The company stepped up its write-off efforts, and the defect rate fell 7 bps quarterly to 0.83% at the end of 1Q24. At the end of 1Q24, the proportion of concerned loans was 1.04%, and the proportion of overdue loans at the end of 4Q23 was 1.31%, both higher than at the end of 2Q23. At the end of 1Q24, provision coverage fell 3.6ppt quarter-on-quarter to 357.0%. By industry, the parent company's non-performing ratio for public real estate and retail loans decreased by 45 bps and 9 bps, respectively, from the end of 1H23, while the non-performing rates in the construction industry and manufacturing industry increased 101 bps and 17 bps respectively from the end of 1H23.
The dividend rate is flat at 30%, which corresponds to a dividend rate of 5.9%. The company's cash dividend in 2023 was 0.54 yuan per share, corresponding to a dividend rate of 30%, the same as the previous year; the current stock price corresponds to a dividend rate of 5.9%. At the end of 1Q24, the core Tier 1 capital adequacy ratio was 9.22%, down 17 bps from month to month, 1.47ppt from regulatory requirements.
Profit forecasting and valuation
We have kept our profit forecasts largely unchanged. The current stock price corresponds to 0.62x/0.57x 2024E/2025EP/B. Maintaining an outperforming industry rating and considering the company's increased write-off efforts to lay a good foundation for the future lightweight market, we expect a marginal steady improvement in subsequent performance growth, raising the target price by 14.3% to 10.40 yuan, corresponding to 0.71x/0.65x 2024E/2025E P/B, with 15.2% room for an increase from the current stock price.
risks
The decline in interest spreads exceeded expectations, and the deterioration in asset quality exceeded expectations.